Alessandro Maravalle
OECD
Aida Caldera Sánchez
OECD
Alberto González Pandiella
OECD
OECD Economic Surveys: Costa Rica 2025
Abstract
Costa Rica’s openness to trade and foreign investment has been the main driver behind the country’s export-led growth, with sectors like medical devices and business investment now surpassing traditional exports. The current nearshoring trend offers a chance to further capitalise on Costa Rica’s strong commitment to open trade and investment and facilitate that more workers, firms and regions reap trade benefits. For that Costa Rica needs to continue optimizing trade policies, improve SMEs participation in international trade, strengthen its innovation system, enhance talent development, address infrastructure gaps, and foster competition in key sectors.
Over the past decades, Costa Rica has achieved notable success in expanding exports, attracting foreign direct investment and increasing its trade network thanks to its strong commitment towards trade and investment openness. Since the 1990s, the country has improved its export performance and effectively diversified its export portfolio beyond traditional agriculture products, like coffee and bananas, and has become a significant exporter of sophisticated goods and services, such as advanced manufacturing products (medical devices) and business services. This shift has been bolstered by the presence of major multinational companies in the country. These successes are closely linked to its stable political environment, strong legal frameworks, free trade agreements, incentives for investors, and commitment to sustainability and human capital. The establishment of free trade zones, together with targeted foreign investment attraction policies, has also been pivotal in attracting foreign investors.
Ongoing nearshoring trends are an opportunity for Costa Rica to further capitalise on its strong commitment to open trade and investment and to tackle the long-standing challenge of enabling the broader reach of trade and investment benefits to workers, firms and regions. For that, the country must address challenges related to workforce skills, infrastructure, innovation, competition and economic diversification. While multinational firms have created jobs and driven innovation, few domestic SMEs participate in global value chains, constraining Costa Rica’s ability to access advanced inputs and benefit from knowledge spillovers and competitive pressures that foster productivity growth. Too many Costa Ricans struggle to access jobs in exports-oriented firms due to a persistent mismatch between workers’ skills and the needs of exporting industries. Transport and digital infrastructure gaps are a barrier to extend the benefits of trade and investment throughout the country and to continue attracting foreign investment. Low competition in key goods and services markets increases costs for exporting firms and undermines their ability to innovate and expand into global markets.
This chapter reviews Costa Rica’s achievements in exports and FDI and assesses policy options to seize new opportunities to integrate further into global production networks while also facilitating that more firms, regions and individuals benefit from trade. This includes policies to boost innovation, improve access to credit and strengthen competition in key goods and services markets to support domestic firms’ ability to export and increase productivity. Redoubling efforts to promote talent development through education and training would better equip Costa Ricans to access new and quality jobs created by trade and would further enhance Costa Rica’s leadership in knowledge-based digital services. Closing infrastructure gaps and improving logistics would help those other areas beyond the Greater Metropolitan Area (GMA) benefit from trade.
4.2.1. Trade exposure and export performance have strengthened
Costa Rica has had a remarkable trade performance over the last decade in both goods and services. Trade exposure increased in the past decade reaching a peak in 2022 (Figure 4.1, Panel A). This robust trade growth is driven by strong export performance, as Costa Rica has successfully gained market share in global markets (Figure 4.2), and expanded trade opportunities (see 4.3.1).
Note: LAC is the simple average of Chile, Colombia, and Mexico.
Source: OECD Economic Outlook (database).
Export performance indicator, 2007=100
Note: The export performance indicator compares the growth of export volumes (goods and services) with that of its export markets. It shows whether the country's exports grow faster or slower than its market, i.e. if over time it is experiencing market share gains or losses.
Source: OECD Economic Outlook (database).
Costa Rica’s strong export performance is marked by increasing diversification in goods, with a rising emphasis on medium and high technology goods. Advanced manufacturing products, most notably medical devices, have now surpassed agricultural commodities as the leading export (Figure 4.3, Panel A). Costa Rica’s goods export markets are concentrated in a few regions, with the United States, Europe and, to a lesser extent, Central America as primary destinations (Figure 4.3, Panel B), which highlights an opportunity for further diversifying trade partners. Moving up the goods value chain, for instance by helping SMEs to become suppliers or partners with MNEs, as discussed in sections 4.3 and 4.4, will increase the profitability and competitiveness of the country’s exports.
Services exports have also grown significantly. Business services, such as accounting, information and communication technology (ICT), back-office operations, and financial services, have significantly increased in value, and have surpassed tourism as the leading services exports (Figure 4.4, Panel A), and are mostly directed towards the United States (Figure 4.4, Panel B). Costa Rica’s performance in trade services is associated with relatively low regulatory restrictions compared to most OECD countries (Figure 4.27), especially in sectors such as financial and legal activities. However, there is still room for improvement in sectors like accounting and transport services, where competition remains limited (see section 4.7 on competition).
Note: In Panel A, medical devices include electronic equipment for medical treatment.
Source: Banco Central de Costa Rica.
Note: In Panel A, “Business services” includes Telecommunications, computer, information services, and other business services.
Source: OECD-WTO Balanced Trade in Services (BaTIS) (database).
4.2.2. Costa Rica receives large FDI inflows
Costa Rica’s ability to attract large inflows of Foreign Direct Investment (FDI) is another cornerstone of its economic success. Annual FDI inflows were on average 4.6% of GDP over the period 2013-23, far above the OECD average (1.9% of GDP over the same period), and above other emerging economies (Figure 4.5, Panel A). FDIs focus on areas such as life sciences, light and advanced manufacturing, food industry and services. The United States is the top FDI investor, distantly followed by European and Central and South American countries (Figure 4.5, Panel B). Costa Rica has benefited from the shift in United States FDI outflows driven by the reconfiguration of global supply chains, resulting in a significant increase in U.S. investment over the past decade. Its geographical proximity to the U.S. offers the possibility of enhancing supply chain resilience through risk diversification —mitigating logistic, climate, and geopolitical disruptions—compared to Asia, while also reducing shipping distances. Although the substantial FDI inflows from the United States offer significant development opportunities, they also pose the risk of over-reliance on a single source. Greater diversification could help mitigate this risk for Costa Rica, as recognised by the Costa Rica Foreign Trade and Investment Promotion agency (PROCOMER) in its 2023 FDI attraction strategy.
Note: In Panel A, G20 non-OECD economies include 8 countries: Argentina, Brazil, China, India, Indonesia, Russian Federation, Saudi Arabia, South Africa. In Panel B, data for 2022 and 2023 are preliminary.
Source: OECD FDI Flows Main Aggregates, BMD4 (database); and OECD calculations based on COMEX.
Costa Rica’s Free Trade Zones (FTZs) have been key to promote higher value-added exports. FTZs are a key element of the country’s export and investment promotion strategy. FTZs have boosted the technological content of exports (Figure 4.6, Panel A) and concentrate most exports and FDI, especially within the Great Metropolitan area (GMA), with two thirds of all exports coming from firms in FTZs (Figure 4.6, Panel B). Acknowledging this challenge, a 2023 law established new incentives aimed to attract FDI outside the GMA targeting companies in export activities as well as in areas such as health, agriculture and sustainable parks. Costa Rica has been able to attract 59 new FDI projects since then, 13 of them outside the metropolitan area, compared to an average of 6 per year.
Costa Rica’s FDI regulatory environment is also very favorable (Figure 4.7) and export services and manufacturing companies, export trade companies (not producers) and companies engaged in R&D that establish in Costa Rica’s FTZs benefit from various tax incentives, custom duty exemptions, and other advantages.
Source: PROCOMER.
OECD FDI Restrictiveness Index, from 0 ("least restrictive) to 1 ("most restrictive"), 2020
Note: LAC is a simple average of Chile, Colombia, Mexico, Argentina, Brazil and Peru.
Source: OECD FDI Restrictiveness Index (database).
Despite its success in attracting FDI and good export performance, Costa Rica is less embedded in global value chains than other more manufacture intensive or trade focused economies (Box 4.1). This reflects that exports are primarily composed of final goods rather than intermediate goods that are part of global production networks. Thus, the country’s industries rely more on domestically produced inputs rather than importing advanced components or technologies from abroad (low backward linkages) (Figure 4.8, Panel A) and exports are mostly final products rather than intermediate goods that are further processed or assembled elsewhere (low forward linkages) (Figure 4.8, Panel B). Increasing participation into global value chains would help Costa Rica to further increase trade benefits. Imported inputs are often technologically superior or more cost-effective, enabling companies to innovate and improve efficiency. Integration into GVCs offers opportunities to specialise in highly productive niches. Additionally, GVC participation can foster knowledge transfer between countries and firms, while driving firms to improve competitiveness and innovation.
Note: Backward participation is the foreign value added embodied in a country's exports as a share of this country’s total exports. Forward participation is the domestic value added of a country embodied in the exports of third countries as a share of this country’s total exports. LAC is the simple average of Chile, Colombia, Mexico, Argentina, Brazil, and Peru.
Source: OECD Trade in Value Added (TiVA) 2023 edition (database).
Costa Rica’s participation in GVCs showed limited progress over the last ten years and remains below the average OECD country. Participation in GVCs is defined the sum of backward linkages (Figure 4.8, Panel A), the share of foreign value added in Costa Rica’s total exports, and forward linkages (Figure 4.8, Panel B), the share of Costa Rican value added embodied in foreign countries’ exports.
In Costa Rica, participation in GVCs stands at around 28% against an OECD average of almost 47%. Manufacturing industries (basic metals, rubber and plastics, transport equipment, machinery, and electronics) score the highest values in backward participation, which points to Costa Rica specialising in assembling activities that require relatively more imported intermediate goods to produce exports.
Costa Rica’s forward participation is larger than in regional peers as Mexico, but the gap with respect to other OECD economies that are also large recipients of FDI remains large. If overall the forward participation rate has stagnated around a low level in the past decade, in services sectors (business services, wholesale and retail trade and repair of motor vehicles and motorcycles) it increased remarkably, far above the average of Latina American countries. This suggests that Costa Rica moved rapidly up the services GVC by shifting the composition of its exports towards more sophisticated services through competitiveness gains. Conversely, forward linkages in manufacturing of computer, electronic and optical products remain low.
Costa Rica’s outstanding trade performance and ability to attract FDI are the outcome of a successful trade policy, which underpins its export-led growth strategy. Key elements include a strong commitment to trade openness with continuous efforts to open new markets through trade agreements, reduction in trade tariffs, effective trade facilities and a favourable business environment for FDI. Moreover, Costa Rica’s attractiveness is bolstered by its robust institutional framework, with the Ministry of Foreign Trade (COMEX) and the Costa Rica Foreign Trade and Investment Promotion Agency (PROCOMER) playing proactive roles in trade policy-making and in promoting exports and investment flows, respectively.
This section presents the features of Costa Rica’s trade policy and proposes how it can be further enhanced by continuing to improve trade facilitation, deepen trade diversification and favour SMEs participation in international trade.
4.3.1. Keep expanding trade opportunities via trade agreements
Costa Rica’s existing trade agreements are wide (Figure 4.9). It has signed 18 trade agreements (bilateral, or multilateral), of which 17 already in force, providing preferential access to markets representing around 60% of the world GDP (PPP based), resulting in an increasing number of trade partners.
With Costa Rica’s exports remaining concentrated in a few destinations, notably the US, (Figure 4.3, Figure 4.4), efforts are underway to further diversify trade partners (Table 4.1). In 2023 Costa Rica negotiated trade agreements with the United Arab Emirates, the first one with a Middle East country, and with Ecuador, the latest entered into force on October 1 2024, that are expected to increase exports and production. Costa Rica also signed in 2024 the Agreement on Climate Change, Trade and Sustainability (ACCTS) with New Zealand, Switzerland and Iceland, through which tariffs on some environmental goods will be eliminated, among other measures. Costa Rica is seeking to join the Pacific Alliance, formed by Chile, Colombia, Mexico and Peru to foster regional integration, which accounts for 60% of Latin America’s imports. If Costa Rica became a member, it would benefit from its geographical location in between the Pacific Alliance members, enhancing access to a large market and improving its prospects to attract further direct investment. It would also strengthen value chains in the region and offer a valuable platform to increase trade integration with Asia, given Costa Rica’s bilateral free-trade agreements (FTAs) with China, Singapore and South Korea. Valuable efforts are also underway, and should continue, to strengthen trade relationships with rapidly growing economies in the Asian-Pacific region by becoming member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Furthermore, Costa Rica is working to join the Digital Economy Partnership Agreement (DEPA).
Signing international treaties that avoid double taxation could help further diversify trade partners in services. Currently, Costa Rica entered into four such treaties with Germany, Mexico, Spain and the United Arab Emirates. Finally, Costa Rica progressed in promoting inclusive trade by joining the Inclusive Trade Action Group in 2023, focusing two of the chapters in the trade agreement with Ecuador on SMEs and gender, and including provisions to support women and youth in the chapter on SME in the agreement with the United Arab Emirates.
Trade agreements, % of world GDP, 2023
Note: Data for GDP refer to 2023 or latest, and for trade agreements to 2020. LAC refers to the unweighted average of Chile, Colombia, Mexico, Argentina, Brazil, and Peru. Trade agreements are weighted by partner countries’ GDP in PPP US dollars. The computations exclude the domestic country GDP.
Source: OECD calculations based on Dür et al. (2014).
4.3.2. Continuing to reduce trade tariffs in agriculture and enhancing trade facilitation
Costa Rica is a member of the World Trade Organisation since 1995, and its trade tariffs are overall in line with the average OECD country, though there is room to reduce tariffs in agricultural goods (Figure 4.10). Moreover, while around 70% of non-agriculture good imports are duty free the share is only 33% for agriculture imports. The top tariffs apply to products such as poultry meat, dairy products, sugar and rice. Reducing import tariffs on raw agricultural products would enhance competitiveness in sectors that rely on them as inputs by lowering their production costs and enabling more efficient supply chains. Following recommendations in previous OECD Economic Surveys (e.g., OECD 2020), rice import tariffs have been recently decreased significantly (from 36% to 5%). Similar steps should be taken in the sugar sector. The intended integration into the Pacific Alliance would also imply lowering tariffs in the agriculture sector. Model-based simulations about the impact of these tariff reductions in the context of an integration with the Pacific Alliance suggest that they would increase Costa Rica’s GDP growth by 0.3% (CEPAL, 2021[1]).
Applied Most Favoured Nation tariff, trade weighted average duty, %, 2023
Note: The Most Favoured Nation tariff is the tariff that countries impose on imports from other members of the World Trade Organisation, unless the country is part of a preferential trade agreement.
Source: WTO Statistics (database).
Costa Rica has progressed in the modernization of land customs infrastructure. Since June 2024 a joint custom infrastructure (the Integrated Control Centre) is operating at the border with Panama with authorities from both countries working together in the same infrastructure. A new custom infrastructure is also at an advanced state (complete at 56% as of September 2024) at the border with Nicaragua. These efforts will expedite firms’ exports thus facilitating trade via land. Costa Rica also streamlined and simplified customs procedures for imports and exports and ranks high in the OECD trade facilitation performance. The National Council on Trade Facilitation (CONAFAC), created in 2017 to help the implementation of WTO Trade Facility Agreement and composed by representatives of the government and businesses, plays a relevant role in enhancing trade facilitation. CONAFAC’s main achievements include investing more than US$110 million in the modernisation of the main land border posts, improving cross-institutional coordination at customs borders, promoting Costa Rica's accession to the Kyoto Convention, modernising customs legislation and carrying out standardisation and automation of foreign trade formalities. However, further improvements could be achieved in custom clearance documents and procedures.. According to OECD Trade Facilitation Indicators, the time required to prepare custom clearance documents could also be lowered. Currently it takes more than twenty hours to prepare all documentation in Costa Rica, against only one hour in the best performing countries (e.g., Singapore).
Further streamlining export processes could make it easier for SMEs to engage in trade. Costa Rica has a single window trade facility (Ventanilla Única de Comercio exterior, VUCE) allowing exporting firms to submit standardised information and documents through a single point of entry. Currently around 56% of procedures in VUCE are automated, and the single window has reduced the time and costs related to trade processes and procedures by around 80% (Thorrens, 2019[2]) and has been recently digitalised (VUCE 2.0) allowing firms to access trade facilities on a digital platform 24 hours a day, 7 days a week.
Costa Rica could further improve its single window trade facility to provide specific services tailored to the needs of SMEs following the examples of countries such as South Korea, Peru and Uruguay (Box 4.2). SMEs typically face additional specific barriers both internal (e.g., such as lack of information about foreign markets) and external (lengthy and costly regulations). Providing digital platforms that make easier for SMEs to connect with MNEs and foreign companies, also through information on trade fairs, could provide SMEs with the network required to export that they often lack. To better understand the barriers SMEs face for their internationalization, the government could launch a consultation with SMEs associations. The ongoing development of the VUCE 3.0, to be completed by 2027, provides an opportunity to integrate improvements targeting exporting SMEs. More broadly, streamlining bureaucracy, which is burdensome in Costa Rica as analysed in Chapter 2 and in previous OECD Economic Surveys, would benefit SMEs internationalisation as their competitiveness in global markets is highly affected by domestic regulation.
Peru integrated into its single window for foreign trade (Ventanilla Unica de Comercio Exterior, VUCE) two specific tools aimed to strengthen international trade participation of small and medium sized enterprises (SMEs): E-PYMEX and VUCE B2B.
E-PYMEX is an Enterprise Resource Planning (ERP), a free digital platform specifically designed for SMEs engaged in international trade to help them manage and integrate all their business activities (e.g., sales, purchasing inventory, marketing or finance).
VUCE B2B is a digital marketplace that helps Peruvian SMEs to easily search for foreign buyers and offers information for tendering processes, fairs, and other business events. The platform is connected to E-PYMEX and allows SMEs to streamline all business-to-business (“B2B”) and business-to-government (“B2G”) trade-related payments.
Uruguay’s single window for foreign trade incorporates since 2019 the tool “TU EXPORTA” (“You Export”) to boost the internationalisation of SMEs, increase their formalization, and reduce costs for small shipments. The project allows small and medium businesses to export shipments of up to 2,000 USD in value and benefit from exclusive exemptions. These exemptions include a simplified and expedited customs process, a complete waiver of taxes and duties, and a special process for returned goods. All these processes are managed and centralised in Uruguay’s VUCE, simplifying the interactions between exporting SMEs and customs agents.
South Korea’s platforms uTradeHub and UniPass are a global benchmark for single windows for foreign trade since their launch in 2006 and 2007. The two platforms provide a series of services including providing support for finding foreign buyers, obtaining international standards and certifications, automatising custom procedures, and assisting in corporate functions like finance, human resources, and logistics. The platforms integrate specific services tailored to the needs of SMEs to help them start and develop international SME eCommerce. These initiatives contributed to reduce exporting costs for SMEs, mainly via reduced services charges from custom brokers, improved transparency in foreign trade procedures, and contributed to increase Korean SMEs participation in international trade.
4.3.3. Further facilitating SMEs internationalisation
Costa Rica remains a dual economy with a small number of large and relatively productive multinational firms, largely focused on external markets, coexisting with a majority of local SMEs exclusively focused on domestic markets that struggle to grow and to export (Figure 4.11), as described in previous OECD Economic Surveys (OECD, 2016[5]; OECD, 2018[6]; OECD, 2020[7]; OECD, 2023[8]). This duality is a key factor behind Costa Rica’s low level of labour productivity (Figure 4.12, Panel A), which is only slowly converging towards the OECD average (Figure 4.12, Panel B).
Note: Panel A: OECD is the simple average of 20 OECD countries. LAC is the simple average of Argentina, Brazil, Chile, Colombia, and Mexico.
Source: World Bank Enterprise Survey (database); and Banco Central de Costa Rica.
Note: In Panel B, the dotted line is the linear trend in productivity expressed as a share of OECD average level.
Source: OECD Productivity (database).
Acknowledging the relevance of strengthening linkages between Costa Rican SMEs and multinational enterprises (MNEs), Costa Rica, as part of its trade policy, actively promotes partnerships between local suppliers and multinationals. Costa Rica Foreign Trade and Investment Promotion agency (PROCOMER) recruits and evaluates local potential suppliers and assess whether they are suited to become providers of foreign firms. They assess suppliers’ infrastructure, production capacity and upscaling, marketing or human capital and recommend them how to further improve. Despite limited resources (12 people and an annual budget of 745 thousand USD in 2019 (Monge-Gonzalez, Crespi and Beverinotti, 2020[9]), PROCOMER has established more than 5000 linkages between local suppliers and exporting firms, for example in the medical device sector, since 2020. Linkages of higher value usually occur when the local supplier operates in high-technology sectors (e.g. QR technology, solar battery, automation and robotics development or nanotechnology solutions for agriculture) and can innovate to adapt production to the specific needs of the MNEs. The integration of local firms into the GVC of semiconductor is also actively promoted by the Ministry of Foreign Trade (COMEX). PROCOMER, together with the Ministries of Agriculture and Livestock and COMEX, also operates the programme Descubre to link farmers to export markets by providing technical support for small producers to become providers of larger exporting companies in selected agro-food value chains (OECD, 2023[10]). The programme has a reduced budget and staff and its impact is yet to be evaluated.
Becoming a supplier or partner of MNEs can also be a stepping-stone to export, facilitate firm growth and creation of higher-wage formal jobs (Figure 4.13). Evidence shows that firms that have become suppliers of MNEs are indeed more likely to start exporting. Costa Rican firms that supply foreign-owned firms have, four years after the first sale, 33% higher sales, 26% more employees, 22% more net assets, and 23% higher total input costs (OECD, 2018[11]; Rodriguez-Alvarez and Monge-Gonzalez, 2013[12]; Alfaro Urena, Manelici and Vasquez, 2021[13]). Total Factor Productivity increases range from 4% to 9% (Alfaro-Urena et al., 2022[14]). These benefits originate from technology spillovers (special equipment, inputs or technology), better administrative or production practices, or human capital spillovers (learning by doing and specific training). Over time, further spillovers originate via labour mobility (Monge-González, Hewitt and Torres-Carballo, 2015[15]), as workers trained in high productive exporting firms may spread knowledge to local suppliers or create new firms, through imitation (reverse engineering, management practice), or by promoting competition among domestic firms trying to supply MNEs. Given the positive impact that these linkages have, Costa Rica should continue and expand its efforts to promote partnerships between local firms and multinationals, also by taking advantage of a MNEs post-pandemic strategy of strengthening links with local suppliers to reduce supply chain disruption risks.
Promoting certification among SMEs can also facilitate SMEs becoming suppliers to larger firms. By obtaining internationally recognised certifications in areas such as product safety and quality or environment sustainability (e.g., ISO 9001, ISO 14001, Marca Pais, Carbono Neutral), SMEs can demonstrate their commitment to meeting high standards and ensuring product or service reliability. However, Costa Rica’s SMEs often struggle to obtain international quality certification also because the process to obtain certification is costly and lengthy. Developing funding schemes to support SMEs in obtaining internationally recognised certifications, including by repurposing some of the existing business innovation schemes, could increase SMEs chances of obtaining certification. Other public policies can indirectly foster stronger linkages, including encouraging SMEs to invest in innovation, technology and processes that make them more attractive to MNEs, improving their access to finance and increasing the availability of high-skilled workers, as analysed in the following sections of this chapter.
Wage gap by firm size, % of large firms’ median wage
Source: OECD calculations based on Banco Central de Costa Rica.
To promote further integration into global value chains Costa Rica needs to continue attracting FDIs and better integrate MNEs with the local economy. To achieve it, trade policy should be complemented with policy interventions addressing structural bottlenecks in areas such as infrastructure, innovation and access to finance, education and skills and competition. SMEs may be less attractive as partners for foreign firms because they lack high-skilled workers, or access to finance to support investment for obtaining certification or scale needed to meet MNEs’ requirements, or have low innovation capacity. There is large room to better support business innovation, entrepreneurship and investment in research and development (R&D) to support SME’s internationalisation, as discussed in section 4.4. Similarly, adequate education and training are key policies to avoid that talent shortage reduced the capacity to attract FDI or prevent existing MNEs from further expanding, as analysed in section 4.5. Firms’ ability to participate in GVCs, especially in more remote regions, is limited by inadequate infrastructure development, especially in terms of transports and logistics, as discussed in section 4.6. Low competition, by increasing trade and firms’ input costs and reducing incentives to innovate, makes harder for SMEs to start exporting and integrate into global value chain, as discussed in section 4.7.
Despite its shift into more knowledge-intensive goods and services, Costa Rica underperforms the average OECD country and regional peers in key innovation performance indicators (Figure 4.14). The gap is especially large in innovation outputs, which capture Costa Rica’s limited ability to produce and diffuse new knowledge (e.g. new patents, production of scientific articles, receipts from intellectual properties) and the reduced impact of new knowledge on the economy (e.g., gain in aggregate labour productivity, creation of domestic high technology companies). The gap in innovation outputs is also due to the National Plan for Science and Technology (NPST) not focusing on innovation outputs, an aspect that could be considered in the assessment review of the NPST launched in June 2024. Overall spending in R&D is low (Figure 4.15, Panel A), far below that of most OECD countries (0.4% of GDP against 1.9% of GDP for the average OECD countries) or what it would be expected for its level of development (0.75% of GDP) (Monge-Gonzalez, Crespi and Beverinotti, 2020[9]). Moreover, Costa Rica has few researchers (Figure 4.15, Panel B) and the number of patents or industry design is low relative to Costa Rica’s level of investment (WIPO, 2023[16]).
Global Innovation Index, 0-100 (or “best”), 2023 or latest
Notes: The Global Innovation Index measures countries’ capacity for, and success in, innovation. It is composed of two sub-indices, the Innovation Input Index and Innovation Output Index, which are composed of five and two pillars, respectively. LAC is the simple average of Chile, Colombia, Mexico, Argentina, Brazil, and Peru.
Source: World Intellectual Property Organization (WIPO).
Investment in R&D is performed primarily by the higher education sector (public universities) and the business sector (Figure 4.15, Panel A). Public universities are funded by the education budget and by Constitution are fully autonomous on how to allocate their research budget, which is not subject to external assessments. Funding for public research then tends to be dispersed across multiple areas without clear priorities. Costa Rica could follow the example of many OECD countries (e.g., Finland or the United Kingdom) that have a competitive and research performance-based system as the main mechanism for orienting public funding in science, technology and innovation.
Investment in R&D by the business sector is also low. It is mostly performed by large, mainly foreign owned enterprises firms operating in the free trade zones, and in a few dynamic sectors in the agroindustry and in advanced manufacturing industries (medical devices, aerospace, renewable energy, software and design services) (OECD, 2017[17]). Several MNEs perform R&D abroad, while local firms rarely engage into R&D nor demand R&D or services based on R&D by local universities or research centres.
Note: In Panel B, there are no data for the number of researchers for Australia, Colombia, and Israel, and for the number of women researchers for Australia, Canada, Colombia, Israel, New Zealand, and the United States.
Source: OECD MSTI (database).
The low level of business R&D investment is also due to the limited support provided by public innovation policies through grants and credits. Two programmes (PROPYME, and Linkages), run by the Costa Rican Promoter for Research and innovation (Promotora Costarricense de Innovacion e Investigacion), an agency under the Ministry of Science, Technology,Innovation and Telecommunications, provide grants for capability upgrading of SME and business linking to global value chains, but have little funding, restrictive requirements and burdensome operations, and few SMEs benefit from these programmes (OECD, 2017[17]). The Development Banking System (Sistema de Banca para el Desarrollo) is the main source of credit for business innovation, but while it increased its credit portfolio and number of beneficiaries since 2022, its ability to support funding for innovation has room for improvement, as analysed in section 4.4.2.
Strengthening support for innovation and R&D would encourage companies to develop more sophisticated products and processes to be more competitive on a global scale and help them integrate more fully into global value chains. By strengthening its public innovation policies, promoting the transfer of knowledge between universities and the business sector, and improving access to finance for innovation, Costa Rica can create a robust innovation ecosystem that drives export growth and attracts FDI.
4.4.1. Enhancing the public innovation system
Strengthening governance and streamlining programmes
Costa Rica’s public innovation policy is underdeveloped and uncoordinated, with highly independent institutions that struggle to cooperate to implement a consistent innovation policy. Weak coordination and limited funding lead to poor implementation of the National Plan for Science. The Ministry of Science, Technology, Innovation and Telecommunications (MICITT), the leading ministry in charge of coordination and implementation of innovation policies, has recently increased its staff (from 150 to 193) and budget, though still remains underfunded. The budget for Science, Technology and Innovation (STI) at 0.015% of GDP in 2023 is low and is traditionally scattered across a large number of programmes so that each programme ends up with limited resources and often overlaps with others, producing duplicity and high management costs (OECD, 2017[17]). The budget is set annually adding uncertainty over continuity in the funding for innovation. Programmes are designed and managed by different institutions hampering coordination and policy alignment.
Designing a long-term national innovation strategy would help identify technologies and sectors with strategic importance in terms of growth and employment opportunities, and in which Costa Rica has clear potential to achieve excellence. Involving in the design of this strategy all relevant stakeholders (representatives of the government, academia and business sector) and making it subject to the Parliamentary approval, the innovation roadmap could result resilient to the political cycle thus ensuring continuity in the pursuit of its long-term goals. A reform of the governance of the National Innovation System aimed to ensure high degree of coordination among public institutions would ease its implementation.
Strengthening the role of the innovation ministry could improve coordination, monitoring, implementation and assessment of innovation policies. The recent reorganization of the MICITT structure aimed to achieve better coordination across all the actors of the National STI system, also through the formulation of policies and guidelines, may help avoid duplication and optimise the use of resources. As a further line of action the number of programmes could be consolidated around key areas identified as national priorities and a single window for business innovation programmes could be established to streamline document submission and processes in the delivery of business innovation programmes. The steering power of the MICITT could benefit from counterbalancing the operational autonomy of autonomous agencies operating in sciences, technology and innovation that are responsible for funding allocation. This could be achieved via strong accountability requirements set by the MICITT. Costa Rica could follow the example of several OECD countries that adopted successful institutional frameworks for the design of innovation road mapping and to achieve stakeholder coordination (Box 4.3).
The Netherlands’ Advisory Council for Science and Technology Policy (AWT), created in 1990, is an independent strategic advisory body that advises the Dutch government and parliament on STI policy aiming to achieve excellence in selected areas and technologies selected for their strategic importance in terms of growth opportunities or relevance to societal challenges. The AWT is composed by a maximum of twelve members from research institutes and business-sector organisations who participate as individuals rather than as representatives of their organisation of affiliation, and is supported by an administrative and secretariat staff to help prepare meetings and draft reports and background studies. The AWT can be solicited to provide advice on innovation policy or specific policy issues by the Ministry of Education, Culture and Science, the Ministry of Economic Affairs, other government departments or the Parliament. Its multi-annual work programme is defined in consultation with The Netherlands Ministry of Education, Culture and Science and Ministry of Economic Affairs. The AWT produces an annual report and publicises its findings through reports, advisory letters and background papers. The AWT is evaluated every four years by an external independent commission, according to the guidelines of the Advisory Bodies Framework Act.
The Finnish institutional framework for science, technology and innovation (STI) policy has been considered a reference since the 1990s. Within the Finnish innovation system the Research and Innovation Council (RIC, earlier the Science and technology Policy Council) plays a key role. The main duties of the RIC include assisting the government in its responsibilities for the master plan, coordination and fund-assignment in national technology policies. Joint with a strong commitment to public investment in R&D and education, innovation policy led by the RIC and large, well-funded agencies such as Tekes (Finnish funding agency for innovation) helped transform Finland from one of the lowest-technology economies in the OECD into a global leader in information and communication technologies industries.
In Korea the Science, Technology and Innovation Office (STIO) supports the Presidential Advisory Council on Science and Technology (PACST) and the Ministry of Science and ICT (MSIT) in the cross-governmental co-ordination of the STI system. This STI governance structure provide strategic directions, align plans and budgets and articulate and monitor interventions across the whole of government. The STIO plays a dominant role in developing the five-year Basic Plan and aligning sectoral ministries’ midterm and annual plans with it, as well as in the annual budgeting review of research and development (R&D) programmes and their monitoring and evaluation. This governance has been instrumental in ensuring strategic coherence during a period of rapid expansion of the Korean STI system and the shift from a position of fast follower to that of scientific and technological leader in some key high-growth areas.
Source: (OECD, 2014[18]; OECD, 2023[19])
Innovation policy has had limited success in promoting business innovation, especially in SMEs, or boosting entrepreneurship. In recent years several positive initiatives have been undertaken to improve consistency and efficiency of innovation policy. Recent efforts led to a rapid increase in the implementation of programmes aimed at promoting entrepreneurship benefiting four times more firms in 2023 (120) than what had been the average in previous years. This progress is welcome and should continue. In 2021, most innovation programmes (financial support for SMEs, grants for STEM researchers, support for the creation of clusters) were consolidated within an agency to promote innovation and research (Promotora Costarricense de Innovacion y Investigacion, PCII), under the Ministry of Science, Innovation, Technology and Telecommunication, thus increasing coordination across ministries and the business sector. Increasing limited resources could help amplify the impact of innovation policies, but this should go along with establishing mechanisms to ensure that innovation programmes are assessed and that findings from evaluations feed back into policy making. A more impactful innovation policy could be achieved by setting clear and measurable goals for innovation programmes and regularly assessing their impact, for example via an external independent commission.
Improving the linkages between higher education institutions and the business sector
Promoting collaboration between universities, research centres and firms can drive innovation and technology transfer. However, cooperation between the business sector and private or public educational or research centres in Costa Rica is scarce and mostly for training purposes. To support SMEs to create new products, improve processes and access funding, Costa Rica could develop upgrading programmes targeting SMEs. Several successful country examples could inspire Costa Rica’s efforts. For instance, the EU Innovation Voucher programmes grants SMEs vouchers to receive assistance to explore business opportunities, identify production improvements or develop new products from registered knowledge providers (universities and research centres). Germany successfully supports technology transfers in technologically advanced industries (e.g. Exist, Signo).
Incentives for building links between the higher education and the business sector could be strengthened, also building on the experience of the Hélice programme, funded by the Korean International Cooperation Agency, that promotes the creation of spin-offs based on research developed at the University of Costa Rica. Spin-offs are important vehicles to commercialise new products resulting from scientific research. Universities could take equity investments in spin-off companies. Additionally, the model used to allocate funding for research in universities could be changed towards a performance-based model to promote applied research. To strengthen the links between research and businesses, and to promote local value added and innovation, one criteria to assess performance could be the number of applied research projects a university develops in cooperation or in response to demands from local industries.
Promoting innovation hubs
Establishing innovation clusters or hubs where startups, SMEs and multinational companies can collaborate, share resources and benefit from common infrastructure could support innovation, as evidence from several OECD countries shows (Box 4.4). Costa Rica has a National Cluster Programme since 2020 to facilitate innovation and the integration of domestic firms into GVCs. This initiative if adequately supported and strengthened can promote specialization, support firms moving toward higher value-added activities, and reduce regional gaps. The creation of a cluster coordination unit could strengthen the governance of the cluster development policy. It could collaborate with other agencies (such as PROCOMER) and foster links between cluster firms and public institutions to better align public policies (education, access to finance, competition, regulation, innovation) with the needs of clusters.
Cluster development policy in Latin American countries
Most LAC countries developed cluster policies in the 2000s. Overall, the creation of clusters had a positive impact on firms innovation capacity, development indicators (innovation capacity, employment) and growth (production, exports), though not on aggregate productivity. Among the main lessons of these experiences, divergences in views among public institutions (vision, mandate, short-term political consideration) is found to reduce the capacity to support clusters, whereas a lengthy process to create a cluster (up to three years, with the exception of Chile) reduced trust in cluster potentiality.
The case of the Basque country
The Basque Country, an autonomous community in Northern Spain, adopted a successful cluster policy in the 1990s. Between 1992 and 2010 the CDP supported the creation of 21 clusters, with cluster firms displaying better productivity and export performance than firms in the same sector outside the cluster. Overall, given the large size of the clusters, this policy contributed to boost growth.
The policy supported firms in several ways. It provided support for obtaining international quality certification, made information on international markets more accessible, helped identify education and training institutions to align workforce skills with labour demand, and facilitated the access to incentives for innovation investment. The policy also produced positive externalities for the whole business sectors via the creation or improvement of technology and training centres.
4.4.2. Improving SMEs’ access to finance for innovation
Businesses in Costa Rica fund their innovation investment mostly from own resources (Figure 4.16), with a marginal support from public development funds. Banks grant most business credit to large firms (Figure 4.17, Panel A) and SMEs receive relatively less credit also in international comparison (Figure 4.17, Panel B). Banks are reluctant to lend to SMEs for innovation projects that entail considerable risk, in the absence of collaterals that most SMEs lack. Similarly, they prefer lending for business innovation projects when they are at an advanced stage, thus reducing opportunities for startups (Campos Gallo, Saenz leon and Carvajal Vega, 2022[21]).
Alternative funding options for SMEs remain underdeveloped in Costa Rica. Seed capital, which covers the cost of creating an idea for a new business or a new product, amounted to around 3.3 million colones (around 6,600 USD) in 2023 (Ching Vindas, 2024[22]). The few investment angels operating in Costa Rica are isolated and lack an organization that could help match potential start-ups with seed-stage investors or create connections with other support institutions such as incubators or universities. The capital risk industry, which in many countries is an important option for securing technical and financial support for scaling up innovative fast-growing companies, is also limited. As of 2024 there were no private venture capital risk funds operating in Costa Rica and just two public venture capital funds still at the raising fund stage (Ching Vindas, 2024[22]).
The Development Banking System (Sistema de Banca para el Desarrollo, SDB) is the main source of funding for micro and SMEs in Costa Rica and one of its goals is to provide technical and financial support for SMEs to promote innovation, scaling ups, technology transfer and integration into GVCs. SDB’s resources are targeted in priority to specific vulnerable groups (e.g., women and young entrepreneurs or micro firms), and beneficiaries located in low-development areas. As a result of these priorities, micro firms and, to a lesser extent, small firms, receive most of the SDB credit (Figure 4.18, Panel A), especially in the in the services (trade, other services and tourism) and agriculture sector (Figure 4.18, Panel B).
Composition of funding for innovation, by source, %
Note: The sum does not add up to 100%, as firms can use other sources of funding not included in the figure.
Source: Atlas de Innovacion 2023.
Note: In Panel B, LAC is a simple average of Chile, Colombia, Mexico, and Brazil.
Source: (BCCR, 2023[23]); and OECD (2024), Financing SMEs and Entrepreneurs 2024: An OECD Scoreboard.
Source: Sistema de Banca para el Desarrollo (SDB).
Reforms in 2014 and 2021, together with the issuance of new regulation in 2023, attempted to enhance the role of the SDB in supporting SMEs innovation, technological transfers and integration into GVCs by strengthening credit, guarantees, cooperation with other institutions and the development of new tools such as seed capital and capital risk instruments. While these changes have overall led to a rapid increase in the credit portfolio (+61.4% between May 2022 and August 2023) and in the number of beneficiaries (+80.4% between May 2022 and August 2023) of the SDB, most initiatives related to promoting funding for innovation remain at an early stage and need scaling up. The SDB cooperation with the National Vocational Training Agency (Instituto Nacional the Aprendizaje, INA), could be strengthened to support entrepreneurship training (SDB, 2022[24]). The promotion of seed capital has been more successful, and the SDB has started distributing seed capital via ten agencies each targeting different activities (prototypes, rural entrepreneurship, sustainable production or internationalisation), though the amount of resources involved remains limited. On capital risk, there is limited progress though.
The SDB should continue promoting alternative sources of funding for innovation via seed capital for early-stage startups (e.g., market research or prototyping), and via capital risk tools for late-stage startup (e.g., scaling-up or marketing). The SDB needs to set clear priorities in funding allocation to avoid dispersing its limited resources among too many areas, reducing effectiveness. Priority areas could include support for innovation, entrepreneurship, transfer technology and scaling ups of SMEs, that bear the highest potential for boosting SMEs business innovation. More resources could be also obtained by increasing interest rates on loans to firms that could afford to pay the higher rates applied by commercial banks.
Shortage of human talent and limited financial education among entrepreneurs are general factors hindering the development of capital risk tools in Costa Rica, and accordingly also the SDB capacity to promote them. It is necessary to increase the number of professionals in the management of capital risk funds and to provide sufficient incentives to avoid the high-risk of brain drain once the talent is trained. This process can take several years and incentives to attract talent from abroad could be adopted in the short term. The proposals set in the Institutional Strategy Plan 2024-2028 of the SDB aiming to fund training in risk capital and establish a 5 USD million capital risk fund are positive initiatives. Standardizing the cooperation framework adopted for the accreditation of seed capital agencies would help streamline the process.
To boost business innovation the SDB could address more resources to middle-sized firms, especially in the manufacturing sector, that tend to have a larger potential for innovation. Past assessments of the SDB impact find that most credit for micro firms is provided for necessity rather than for exploiting business opportunities (SDB, 2022[24]). Redefining the size of micro and SMEs according to the OECD definition would allow to increase the size of firms that benefit priority access to SDB funding. A medium-sized firm in Costa Rica has between 31 and 100 employees against between 50 and 249 in the OECD definition. The Ministry of Economy, Industry and Commerce could easily implement this redefinition via a change in regulation.
Costa Rica has made significant investments in education over the years, and its well-educated workforce has traditionally been a key factor to attract FDI in high-value sectors. However, the education system has struggled to keep pace with the increasing demand for high-tech and advanced skills, leading to large skills shortages that now pose a critical threat to Costa Rica’s FDI attractiveness and its ability to maximise trade benefits. More broadly, the education and training system faces structural challenges preventing many Costa Ricans from getting broadly-based competencies to support lifelong learning, as reported in the last Survey (OECD, 2023[8]). In response, several reforms (Box 4.5) have been initiated or are forthcoming, though the full scope and timeliness of these reforms has yet to be disclosed. The effectiveness of these initiatives will have to be closely monitored to ensure they achieve the desired impact Overall, Costa Rica needs to pursue additional reforms efforts to improve educational efforts and reduce skills mismatches, including by establishing regular evaluations to monitor progress and impact.
A main challenge is the mismatch between exporting industry needs and available skills, especially in advanced manufacturing and business services. Businesses and foreign investors report difficulties in finding the right skills and there is a lack of technicians and graduates in STEM areas (INEC, 2018[25]) (see also Chapter 1). Conservative estimates put the shortage of STEM graduates at between eight to thirty-five thousand people over 2017-23 (Santa Cruz, Delgado and B., 2024[26]) for firms operating in the free trade zones, but the shortage for the whole economy is likely to be far larger. It is key to increase the number of technicians and graduates in STEM areas and expand digital and English proficiency to create a skilled workforce capable of driving the country’s integration into global value chains while attracting investment from high value-added high-tech industries.
Costa Rica elaborated a series of reforms of the education system. The full strategy is yet under preparation but several initiatives have already been implemented or are about to be, including:
The Employability and Human Talent Strategy (Estrategia Nacional de Empleabilidad y Talento Humano, ENETH or Estrategia Brete), led by the Ministry of Labour and Social Affairs and including the participation of several public institutions. ENETH aims to increase students’ employability skills by a better alignment of school curriculum with industrial needs, promoting dual education and reinforcing bilingualism, attracting more specialised talent from abroad as well as initiatives aimed to promote the development of talent in innovation;
Increasing the coverage of support programmes for adults with incomplete secondary studies (more than six hundred thousands) by eliminating age eligibility criteria and including in-person and distance educational support, with around 16 thousand adults completing secondary studies by end 2024;
The National Programme in Technological Training introducing new courses in technology and promoting the use of technology as a learning source in 40% of the schools in 2024;
Introduction in 2023 of a standardised test to assess reading and listening skills in a foreign language (English or French) for students in the final year of secondary school and provision of digital support to disadvantaged students (eight thousand in 2023);
Introduction of interactive programmes based on artificial intelligence (learning accelerator tools) to support skills in Mathematics and English language;
Re-introduction of end-of-cycle national standardised tests at primary and secondary schools to assess students’ skills and knowledge and to identify areas for improvement;
Public universities increased grants to facilitate access to tertiary education to disadvantaged students and increase the supply of places of degrees in-demand in the job market;
The Regulation of private higher education was modified to reduce from four years to four months the time required for the National Council of Private Higher Education to approve the creation of a new course or degree;
A legislative initiative aims to streamline higher education academic equivalence to improve international attractiveness of talent;
In collaboration with the Ministry of Labour, MEP awarded 3,000 scholarships to enhance secondary school students’ English language skills, targeting primarily vocational high schools;
To enhance STEM skills of students in vocational education a new specialisation in Artificial Intelligence has been created and two other STEM specialisations (Cloud Computing and Data Management and Visualization) are in the final stage of the approval process;
Three Scientific High Schools have been created in rural areas aimed at graduating 90 students equipped with strong STEM skills.
Increase in school connectivity (broadband) currently covering around 44.5% of all educational centres.
4.5.1. Increasing capacity and quality of vocational education and training
There is room for improving vocational and technical training programmes (VET) to support more workers acquiring skills required to fill jobs in expanding exporting industries. There are few VET graduates (Figure 4.19) and, despite both students and firms high demand, no secondary vocational school has been created since 2016. Many VET graduates also have low qualifications (OECD, 2023[8]) and lack the skills demanded by the private sector, reducing their employability. Only around a third of VET graduates has a specialisation required by firms in the most dynamic sectors (Duran Monge, Santos and Salas-Gutierez, 2023[27]). Not all VET specialisations provide training in highly demanded soft skills (e.g. critical thinking, problem solving, team working), and only a few of them (9 out of 53) have curricula that have been aligned with the private sector to better match their needs (CGR, 2022[28]). Expanding VET programmes in areas in high demand, such as the semiconductor sector (Box 4.6), could enhance competitiveness in more sectors.
% of 25- to 34-year-olds with a general or vocational level of education as the highest level attained, 2022
Source: OECD (2023), Education at a Glance 2023.
The 2021 reform of the National Apprenticeship Institute (INA), which aimed to align training supply to labour market needs and support entrepreneurship, has been challenged in court and stalled. The reform allowed INA to hire externally specialised staff not available internally to strengthen the supply of training in high demand skills, or even outsource this training. To fully reap the benefits of this reform, new legislation has been presented in Congress to amend INA’s legal framework and fully implement the reform.
Costa Rica introduced dual education programmes in 2019 to improve the outcomes of the VET system. However, by 2024 only 300 students are enrolled in dual education programmes, mostly in the tourism sector. The outbreak of the pandemic has probably slowed the roll out. The involvement of firms is crucial for a successful development of a dual education system and social partners (professional and employers’ organisations) must have real responsibilities in defining the overall vocational profile and the standards of the programmes, monitoring and evaluating students’ progress, and grading and granting credits and diplomas. A further barrier to the diffusion of dual education programmes is the cost as the budget for VET has been cut by around 11% between 2015 and 2022 (CONARE, 2023[29]).
A close monitoring of the implementation of the dual education system would help identify weaknesses and thus adjust legislation or regulation to overcome them (EFTP, 2023[30]). A positive progress in this direction is the draft bill presented in the Congress in April 2024, which aims at modifying legislation to increase the number of mentors, scarcity is found to limit the diffusion of dual education programmes. The draft bill includes further measures that reduce the cost of firms in participating in dual education programmes.
Two recent policy initiatives have the potential to improve the supply of VET education in Costa Rica. Firstly, the creation of the National System of Technical Vocational Education and Training (SINEFOTEP) in April 2024 could improve monitoring the quality and effectiveness of VET programmes. Its absence was considered a major obstacle to increase the supply of professional towards STEM areas (CGR, 2017[31]). Secondly, the establishment of a new national strategic framework, the National Policy for Technical Education and Training (PNEFTP) for 2023-2033, if well implemented could improve the supply of VET education by focusing on three axes: ensuring high quality of VET programmes and their relevance to the needs of the labour market via continuous updating and improvement of VET programmes; promoting the development of VET research to better understand the needs of the labour markets and assess the impact of VET programmes; and facilitating the access to VET education of vulnerable population.
In Costa Rica the semiconductor sector employs around five thousand workers, with most firms in the sector operating in the segment of assembling, testing and packaging (ATP) and, to a lesser extent, in that of electronic design (R&D). The use of upstreamness indicators, which measures the position of a sector within a GVC by measuring the average distance of the production stages of an industry from final use (Antràs et al., 2012[32]), confirms that Costa Rica specialises in stages of production close to the final consumption, such as ATP, rather than in upstream activities (e.g. R&D) (Figure 4.20). However, ATP is a low value-added stage of the production chain of semiconductor (around 4 %) and also allows for weak technology transfers (Monge, 2017[33]). An important recent policy initiative, the Semiconductor Roadmap Strategy (SRS), might help Costa Rica move towards higher value-added activities such as the areas of design. The SRS is a cross-institutional scheme aimed at increasing attractiveness for FDI in the semiconductor through a series of policy initiatives in the areas of human talent, R&D and FDI incentives, regulatory improvement and investment facilitation. Preliminary results from empirical work for this Survey (Vidal and Maravalle (forthcoming) suggest that Costa Rica’s exports and real wages in the semiconductor sector would increase by at least 4% if it moved upstream the GVC towards higher value-added activities.
Upstreamness indicators in electronics
Note: Upstreamness takes up values equal or above 1, the higher the value the more production is concentrated in upstream stages that are more distant to the final consumer. LAC is a simple average of Chile, Colombia, Mexico, Argentina, Brazil, and Peru.
Source: (Borchert et al., 2021[34]; Mancini et al., 2024[35]); and Vidal and Maravalle (forthcoming).
4.5.2. Promoting STEM skills
Increasing the share of graduates in STEM, especially in areas such as information and telecommunications (IT) and engineering, would support the expansion of the most dynamic high value-added sectors. Since 2019, the number of tertiary degrees awarded has increased in all STEM areas, but health sciences. However, both the proportion of young adults with higher education (31% against the OECD average of 47%) and the share of graduates in STEM areas remains low in Costa Rica (Figure 4.21). Improving the quality of primary and secondary education, in line with the analysis of the last OECD Economic Survey (OECD, 2023[8]), especially in scientific subjects, is a critical pre-requisite for increasing demand for higher education in STEM areas, and thus the number of graduates. Almost 95% of the students failed the diagnostic test in mathematics of the University of Costa Rica in 2023, and the performance of 15-year-old Costa Rican secondary students in the 2022 Programme for International Student Assessment (PISA) was poor in sciences (36th out of 37th) and mathematics (36th out of 37th).
Tertiary graduates in STEM, % of all graduates, 2021 or latest year
Note: The distribution of graduates by field of study is calculated as the share of graduates from each field over the total of graduates. STEM includes all graduates (short-cycle tertiary, bachelor's, master's, and doctoral degrees) with a degree in natural sciences, mathematics and statistics; information and communication technologies; and engineering, manufacturing and construction. LAC is the simple average of Chile, Colombia, Mexico, Argentina, and Brazil.
Source: OECD (2022), Education at a Glance 2022.
Increasing the number of postgraduates (Masters and PhDs) in STEM fields is especially relevant to support innovation processes that would facilitate the integration of domestic firms into GVCs (Duran-Monge, Santos and Aragon, 2023[36]). Strengthening human talent in STEM areas related to agriculture would promote innovation in regions outside the Great Metropolitan Area where agricultural activities represent a large share of production and a shortage of graduates and technicians specialised in the agroindustry is a barrier to bridge the rural-urban development gap. This would allow Costa Rica to scale up initiatives such as the one promoted by the Ministry of Innovation, Science and Technology, the Rural Development Institute and the National Apprenticeship Institute that support the adoption of technologies (e.g., bioproducts, AI, Internet of things) by around 1,200 local producers in rural areas close to the capital (Dota, Tarrazù and Leon Cortes) to increase their competitiveness through innovation.
Attracting talent from abroad could help increase the supply of talent in high demand sectors in the short-medium term. However, Costa Rica has ample room for improving its capacity to attract highly skilled talents according to the OECD 2023 talent attractiveness index. Despite providing a relatively attractive tax framework and competitive wages (10th out of 38th), Costa Rica performance is poor in quality of labour market opportunities (38th out of 38th), long-term integration and access to citizenship (33th out of 38th) family environment, (opportunities for family members in terms of entry laws, 33rd out of 38th) and skills environment (34th out of 38th). Few Costa Rican STEM specialists live abroad, around 765 students or workers (Santos and Rojas-Godinez, 2023[37]), which is insufficient to fill in the gap, but strengthening networks with them may help attract FDI, favour technology transfer or help establish international research collaboration networks. The pool of talent could be increased by increasing the number of women employed or studying STEM (see Chapter 2).
4.5.3. Strengthening proficiency in digital skills and English
There is room for improvement in digital skills, such as software development, cybersecurity, data science and AI that are becoming increasingly important for firms, as many companies, when deciding where to invest, prioritise countries with a strong pipeline of tech-savy workers.
Costa Rica needs to improve digital literacy from an early age. Educational institutions play a limited role in fostering digital skills, with minimal use of the internet for pedagogical purposes and insufficient teacher guidance (Global kids online survey, 2024[38]). This calls for further efforts in integrating digital literacy into the education system through comprehensive training and a cohesive digital strategy. More attention should be devoted to low-skilled workers that will increasingly face pressures to upskill and reskill because of the digital revolution. Costa Rica currently provides free training to bridge the digital gap through its smart community centres, around 244 throughout the country. Costa Rica could further strengthen basic digital skills across the population by drawing on OECD country experience, such as the system of vouchers that individuals may use in training centres of their choice (as in Vienna in Austria) (OECD, 2017[39]).
Initiatives aimed to strengthen the supply of specialised courses in high-demand advanced digital skills areas include a public-private cooperation among the National Apprenticeship Institute (INA) and the private sector, aimed to create a training facility to train professionals for the semiconductor industry focusing on semiconductor, cybersecurity, 4G and 5G networks, AI, and cloud computing with an initial capacity of 700 students yearly. INA is also strengthening the supply of virtual courses on digital areas in cooperation with large IT firms present in Costa Rica. These initiatives are commendable but it is necessary to overcome difficulties in the recruitment of adequate teaching staff to implement them and scale them up. To this purpose, it is key to amend via new legislation the reform of INA to make it possible to hire externally teaching staff with the adequate specialization that is currently unavailable within INA.
Good knowledge of a foreign language, together with having completed secondary education, are becoming essential requirements for a formal job. MNEs in the services sector often require at least an upper intermediate knowledge of English (level B2) and most firms in manufacturing require the knowledge of English for qualified roles (graduates or technician, managers) (INEC, 2023[40]). The 2023 standardised national test of foreign language competences shows an improvement in the average level of English proficiency achieved by students at the last year of upper secondary studies. However, there are still too many students with a basic (level A1 or A2) or an intermediate level (level B1), especially among young adults. The knowledge of English should be strengthened at any level of education, but especially at an early age as the coverage of English in preschool and primary schools is incomplete because teachers are scarce (OECD, 2023[8]). The lack of English teachers is mostly due to the imbalance between the supply of graduates in education programmes and the needs of the education system. To reduce this imbalance, Costa Rica could consider increase the quota of university programmes in English education or try to attract English teachers with high-quality teaching qualification from abroad.
4.6.1. Transport infrastructure needs are high
Infrastructure gaps result in higher costs to export and import, hindering participation of firms from remote regions, especially SMEs, in international trade. Costa Rica suffers from infrastructure bottlenecks in nearly all transport areas (Figure 4.22). The road network is of low quality, Pacific coast port infrastructure has insufficient capacity, the rail system is underdeveloped (Figure 4.23, Panel A) and intermodal connections are weak. Large investments are needed to improve the quality of transport infrastructure, which is essential to connect regions and firms to international markets. The low quality of transport infrastructure negatively affects Costa Rica’s logistic performance (Figure 4.23, Panel B) and poor logistics hampers supply chain resilience and deeper integration into global value chains.
Transport Infrastructure Index, 0-100 (“best”)
Note: Transport infrastructure include road, rail, sea and air.
Source: World Economic Forum (WEF) Global Competitiveness Index 4.0 (database).
Improving ports is essential as they are the main portal for shipping imports and exports. Accessibility to global trade through the shipping network, proxied by the liner shipping connectivity index, points to a low level of integration (Figure 4.23, Panel A). The main port on the Pacific coast, the port of Caldera, is operating above its maximum capacity provoking delays and higher transport costs and reducing the potential for exporting to Asia (e.g., agriculture products). With a railway network almost inexistent, the Costa Rican freight transport system is essentially based on roads, whose low quality (Figure 4.23, Panel A) is the cause of frequent traffic congestions, slow speed and long trip times. Costa Rica performs better in efficiency of airport services, above regional peers though still below the OECD average. The Juan Santa Maria Airport, one of the two international airports, is expected to reach its maximum capacity by 2025. The current concession is expiring in 2036 and it is unclear if the airport will be able to absorb the expected increase in the number of passengers and freight, and no new airport is expected to be built.
The low quality of Costa Rica’s transport infrastructure can be attributed to underspending (Figure 4.24) and deficient strategic planning (OECD, 2016[5]). Even during the 2008-19 public spending surge that led to Costa Rica’s critical fiscal situation, capital investment was largely neglected at the advantage of current primary spending (OECD, 2023[8]). Progressing towards the 2030 Agenda for Sustainable Developments goals in transport, energy and telecommunication infrastructure would require investment amounting to 3-4% of GDP (Brichetti et al., 2021[41]). While reducing the fiscal deficit would gradually open space for increasing capital investment (see Chapter 1), private investment will also be needed to fill infrastructure gaps.
Source: World Economic Forum (WEF) Global Competitiveness Index 4.0 (database); and World Bank Logistic Performance Index (database).
Public investment in infrastructure, % of GDP
Source: INFRALATAM.
4.6.2. Enhancing transport infrastructure governance
The National Transport Plan 2011-2035 was not agreed with all relevant stakeholders (private sector, citizens) and its implementation is hindered by administrative fragmentation, weak governance and lack of institutional capacity, which in turn cause inefficient planning, selection, prioritization and implementation of transport infrastructure (CGR, 2020[42]). Ten different transport agencies may sponsor infrastructure projects. However, projects lack a proper feasibility and affordability analysis assessing the risk of cost overruns, despite passing a pre-investment assessment phase and a cross-institutional validation process. Weak planning results in higher cost and delays in the implementation phase (e.g., unprogrammed expropriation, use of materials requiring higher maintenance costs). The time required from planning to implementing infrastructure is also extremely long (between 8 and 11 years) (PEN, 2018[43]), despite there have been improvements in reducing delays in the implementation phase since 2017. For example, the project for the construction of a new road connecting the cities of San Carlos and San Ramón was approved in 1969, began in 2005 and is expected to be completed in 2026 (Madrigal, 2023[44]). These delays undermine the ability to execute capital investment projects, and usually only 30% of the capital spending that is budgeted is executed.
Infrastructure project selection is also subject to the political cycle. Project prioritization, as well as procurement modality (standard or Public-Private Partnership), can change during the life of a project when the deciding administration changes, preventing project continuity. Moreover, directors of infrastructure agencies have a quick turnover hindering long-term planning. Between 2005 and 2014 the project for an electric train aimed to improve the public transport system in the Great Metropolitan Area was changed six times by different directors of the Costa Rican Railway Institute (INCOFER) and has not yet been implemented.
Strengthening transport infrastructure governance to ensure continuity in the implementation of a long-term vision for infrastructure, including by making it less dependent on the political cycle, and improving institutional capacity is a priority. Costa Rica could establish a shared long-term strategy to be elaborated by experts and approved by central government, after consultation with local government, the private sector and citizens. Its implementation could be compulsory and regularly updated. The selection of the projects to be included in the budget could be based on clear criteria consistently applied to all projects in the portfolio. Giving priority to ongoing project and infrastructure maintenance investment needs may be an option for ensuring continuity.
Ongoing reforms aim at streamlining the transport institutional framework by eliminating redundant agencies and transferring their functions to the Ministry of Public Works and Transport (MOPT). These reforms attempts are welcome as they would foster MOPT’s stewardship and improve coordination, help reduce fragmentation in public investment processes and foster the ability to deliver capital investment projects in a more effective and efficient manner. Furthermore, the assessment of infrastructure projects should be strengthened to ensure adequate analysis of feasibility and affordability. In the short term, when institutional capacity is not available, resorting to the private sector for evaluating infrastructure projects using standardised contracts could be a possibility. In the long run, to strengthen technical capacity and reduce the impact of the political cycle, Costa Rica could opt for transferring the assessment and management of all infrastructure projects to a single independent infrastructure public agency with permanent technical staff and a director appointed through a competitive procedure, as is the case in several OECD countries (Box 4.7). Given the limited fiscal space, the agency could be funded through savings from eliminating or downsizing existing agencies and could be also tasked with elaborating a long-term infrastructure strategy in coordination with all relevant stakeholders.
Australia: Infrastructure Australia is an independent infrastructure agency created in 2008 to assess that infrastructure investments meet national needs, to advice on reforms to infrastructure legislation and to ensure that planned infrastructure is effectively prioritised in the national budget. The agency maintains the Infrastructure Priority List, a public list of unfunded pipeline infrastructure projects of national significance. The agency collaborates with policy leaders, industry experts, government stakeholders, and academia, to guarantee that infrastructure policy and projects deliver meaningful outcomes.
Chile: The Chilean National Investment System (SNI) ensures independent analysis and assessment throughout planning, execution, and evaluation of infrastructure projects. The assessment process consists of four stages: ex-ante review for social impact, coordination of budget formulation, supervision of budget execution, and ex-post review for efficiency and effectiveness.
Korea: Large infrastructure projects in Korea are evaluated by the Public and Private Infrastructure Investment Management Centre (PIMAC), an independent unit of the Korea Development Institute. The agency reviews central or regional government projects whose cost is above a minimum threshold (approximately USD 50 million in 2022). All infrastructure projects must undergo a Preliminary Feasibility Study by PIMAC to assess their economic efficiency and development significance. The agency assesses the risk of overestimating demand. Projects whose cost increased undergo a Re-assessment Study of Feasibility.
4.6.3. Improving road and port infrastructure
Costa Rica has an extensive road network but its overall quality is low (Figure 4.23, Panel A). Around one third of the National Road network has insufficient functional capacity, a share up to 50% in the province of the capital San Jose, and driving conditions become dangerous on most roads when wet (80%) (LANNAME, 2023[48]), and rain is common in Costa Rica even during the dry season.
Resources for road infrastructure and maintenance are low. The budget of the institution charged with road infrastructure (National Council for Mobility, CONAVI) was cut by 40% between 2017 and 2022. Only 61% of road maintenance interventions in 2021 were associated with improvement in road conditions, which points to spending inefficiencies. Lack of road maintenance risks increasing rehabilitation costs and reducing the expected life of the infrastructure. Estimates find that each dollar not spent in maintenance requires at least seven dollars in the future.
Lack of competition in the road infrastructure market reduces quality and increases the risk of corruption. In Costa Rica two firms used to win most contracts for road maintenance (41 out of 44 in 2022/23) and there have been corruption scandals leading to the suspension of maintenance contracts in recent years (e.g., the Cochinilla bribery scandal in 2021). Attracting international firms to participate in public procurement for infrastructure projects could increase competition. This could be facilitated by increasing the value of projects for procurement, for example by binding multiple slots, as well as removing regulation that may advantage local firms (e.g., use of local materials).
Adopting maintenance contracts based on results could reduce costs and increase quality and life expectancy of road infrastructure. In a maintenance contract based on results, the government would pay a fixed periodic fee, independent of the frequency and type of work required for maintenance, if the quality of the road infrastructure remains above some minimum standards. Maintaining an updated database of national roads and their status would help identify needs and priorities, following the example of the Road Administration in Estonia. An electronic database storing information on all investments in new road infrastructure and maintenance would increase transparency. The National Council for Mobility (CONAVI) should be able to shift resources to face unexpected events or needs, but currently that is difficult as it requires a legislative decree.
Maritime transport is the backbone of trade in Costa Rica, with around 60% of all goods exports passing through ports, but port infrastructure needs improving. Costa Rica’s main ports are the Caldera Port, the main freight port in the Pacific side of the country, and a seaport (Port Terminal of Limón) and a container port (Moín Container Terminal) in the Caribbean coast of the country. The ports in the Caribbean coast, however, have a far higher capacity than the Caldera Port and handle most (83%) of the cargos, thus accounting for most of goods export movement. The Pacific Caldera port is currently operating at maximum capacity, which increases trade processing times and produces inefficiencies leading to costlier imports and exports. Improving port infrastructure and increasing capacity in the Pacific side would support trade growth, facilitate expansion of exports towards Asia and help diversify trade, as also supported by a cost benefit analysis performed the International Finance Corporation (INCOP, 2024[49]). Currently, works on Caldera port are expected to start in August 2026, when the current concession expires, but optimisation works to maintain its operational capacity are expected to be completed by 2025.
Transport intramodality needs to be considered when planning the improvement of port infrastructure, so that road or train infrastructure is also developed to consider the increase in traffic due to the port activity. To reduce transport times for imports and export movements and traffic congestion, Costa Rica should intensify its efforts to develop freight railway connecting the main ports on the Pacific and Caribbean coast with the Great Metropolitan Area, such as the project of a freight train connecting the Caribbean and Northern regions (TELCA) that since 2019 remains at the planning stage. Transport costs are high also because of lack of competition in water freight transport, as discussed in section 4.7.
4.6.4. Leveraging external financing for infrastructure
Costa Rica could promote the participation of international firms in public procurement for infrastructure projects by increasing the scale of tenders, also via bundling together slots of lesser value, to increase competition among bidders to reduce costs and increase the quality of infrastructure. However, Costa Rica’s limited fiscal space for public spending in infrastructure makes leveraging external financing to fund public infrastructure an attractive alternative to bridge its infrastructure gap. Costa Rica can enhance access to external financing for infrastructure through a broad strategy that includes leveraging private investment, including PPPs, alongside other pillars. By fostering PPPs, the government can attract private sector investment in infrastructure projects, transferring some financial risks and reducing public expenditure. This can be complemented by concessional loans from multilateral institutions, offering favourable terms like lower interest rates and longer repayment periods. Additionally, Costa Rica could opt for issuing green or sustainable linked bonds to attract capitals for investment focused on environmental projects capitalizing on its strong environmental policies.
Costa Rica could use private public partnerships (PPPs) to leverage private sector investment in infrastructure. Since the adoption of the Concession Law in 1998 only five projects have been developed as PPPs in Costa Rica. Several regional peers have been able to use PPPs to improve infrastructure capacity such as Chile, or Colombia, which developed 4900 km of roads in 13 years through PPPs, and recently applied PPPs to cover non-transport infrastructure such as water treatment plants and hospitals (OECD, 2024[50]).
The limited use of PPPs is due to regulatory asymmetry between PPPs and standard procurement and lack of institutional capacity in the National Concessions Council (CNC), the body under the Ministry of Public Works and Transport tasked with administering procurement contracts. The process for implementing PPPs is more complex than standard procurement and most staff lack the specific knowledge required to apply it. The PPPs methodology to perform cost-benefit analysis is also more onerous, as it requires comparing initial savings in capital spending against the stream of future annual payments or relinquishing revenues from user fees. PPPs also tend to have higher transaction costs to structure deals and monitor performance and imply contingent liability risks (payment to be made if certain events occur, such as minimum traffic guarantee, compensation for early termination) that are complex to estimate. The use of PPPs should also be accompanied by proper fiscal accounting in the budget of these contingent liabilities.
To expand the use of PPPs the technical capacity of the staff of the National Concession Council should be increased, and subcontracting technical analysis allowed, as in Panama. The council should also focus its activity on the design and assessment of PPP projects, while delegating supervision tasks to the entity sponsoring the project. Streamlining PPPs’ procedures to reduce their cost and execution time and could further boost their use and make PPPs more attractive to the private sector.
Despite the potential of PPPs to deliver much-needed infrastructure investment under limited fiscal space, they require carefully designed frameworks to mitigate some of the inherent risks, which include demand risk, operating risk, investment risk and land acquisition risk (Box 4.8). While a PPP project may be feasible and economically viable, and value for money analysis show that the PPP is the best option to procure it, fiscal risks must be carefully assessed to define its affordability. This is a challenging task because the cost of contingent liabilities is difficult to assess, since the need for, timing, and value of payments are uncertain. Colombia, Peru and Chile all have published accounting and budgeting methodology for valuing the financial implications of contingent liabilities under PPPs.
A prerequisite to expand the use of PPPs in Costa Rica is the adoption since the beginning of an adequate dispute resolution mechanism through cheap, rapid and independent resolution protocols. Disputes between the government and the private concessionaire over a PPPs deal may lead to lengthy legal proceeding that delay construction or disrupt facility operation as happened for example for the first generation of PPP road concessions in the mid-1990s in Mexico, Argentina and Colombia (Engles et al., 2003[51]). Procurement information systems could be adopted to learn from past procurement outcomes as well as identify signs of bid rigging, such as the Construction Quality Assessment System of Singapore, which provides independent evaluations by inspecting firm’s performance.
Demand risk, operating risk, investment risk and land acquisition risk are the main risks that need to be carefully assessed and managed in transport PPP projects. A transport demand lower than projected may cause revenues to be insufficient to cover costs. Increases in operational costs (wages, energy) that cannot be shifted onto transport fees would reduce profitability. Transport infrastructure require large land acquisition that may be opposed by residents causing delays.
An adequate management of these risks should be considered along all the phases of the project:
Set a legal and institutional framework that ensures transparency and fairness in the process of PPP projects to help the private sector to adequately evaluate the risks involved;
Project development: careful planning and management and allocation of risks, by implementing feasibility studies in drafting PPP projects that include risk allocation, assess economic feasibility and expected outcome (e.g. reduction in traffic congestion);
Project planning: Clarify the risk allocation between the public and the private sector also by defining the form of PPP (e.g., Build, Operate and Transfers, where the private after building the infrastructure transfers it to the public sector and leases it; or Build, Own and Operate, where the private sector builds and operates the infrastructure with ownership);
Project Procurement: In selecting the private sector partner invite many candidates to increase competition and provide appropriate specifications in the procurement to ensure that the selected company has the required capability, experience and reliability. In the evaluation process, consider the quality of transport infrastructure (user utility, safety and environmental impacts) as well as the costs; launch market sounding nationally and internationally where the public sector explains the transport PPP projects under consideration to the private sector to increase participation;
Project Implementation and Monitoring: Supervise the work, the costs and the schedule of building and operation; resort to support from international cooperation organizations that might provide expertise.
Chile avoided demand risk in its concession for the construction and operation of a 141 kilometre road (Interconexion vial Santiago Valparaiso Vina del Mar) by setting a variable term for the operation phase, which would extend the concession beyond the initially planned 22 years if a longer time was necessary for the tendered company to recover the investment. The construction phase took three years and the project improved connectivity in the area reducing travelling time and improved safety. Thailand used PPP to build and operate an inland container deposit and to build the road connecting it to the Laem Chabang Port. The projected increase in activity of the port was assessed as a factor heavily reducing demand risk.
Source: (APEC, 2015[52])
Finally, building credibility and trust among stakeholders (private sector, government and citizens) is crucial to increase the use of PPP contracts, which imply long time relationships (up to 90 years). Costa Rica could start building credibility by adopting PPPs in future procurement contracts, estimated at around 2 USD billion in the next two years. A further stimulus to the use of PPPs could come from the Public-Private Partnership Project Preparation Facility (PPF), which aims to leverage public and private sector resources (up to USD 1.2 billion) to develop sustainable and efficient infrastructure projects by 2030. A further area to start using PPPs is provided by a 2019 reform that introduce the possibility of using PPPs for running underused public infrastructures (infrastructure asset recycling).
4.6.5. Upgrading and expanding digital infrastructure
Digital infrastructure is expanding but challenges exist to further increase the coverage and performance of the fixed broadband network and to start deploying 5G mobile networks. Around 95% of the population and 79% of the territory is covered by 4G mobile network technology and access to mobile broadband has increased, though it remains below the OECD average (around 96 subscriptions per 100 inhabitants in Costa Rica against 115 for the average OECD country). Fiber optic infrastructure has remained stable between 2019 and 2023 and fixed broadband penetration remains low (Figure 4.25).
Fixed broadband subscriptions per 100 inhabitants, by technology, December 2023
Note: Data for 2023 for Australia, Canada, Mexico, Switzerland, and United States, are preliminary estimates. For Canada, fixed wireless includes Satellite. For France, cable data includes VDSL2. For Italy, terrestrial fixed wireless data includes WiMax lines, and other data includes vDSL services. For Mexico, data for 2023 corresponds to Q3 2023. DSL stands for digital subscriber line technology.
Source: OECD Broadband Statistics (database).
The deployment of 5G infrastructure is currently limited in Costa Rica, contrary to several countries in Latin America where 5G networks are already in place. The deployment of 5G networks would provide Costa Rica with faster and more reliable connectivity to support development. Costa Rica started in the summer of 2024 an open tendering to assign the 5G spectrum frequencies to telecommunication operators, which is expected to be completed by the first quarter of 2025. The auction process is designed to provide strong incentives for the deployment of 5G networks throughout the country. Following the approach used in Brazil in 2021, most of the value of the bid (90%) would be returned to the operator in exchange for building connectivity infrastructure in low-density priority areas outside the Great Metropolitan Area, which otherwise would not be covered for not being financially viable.
Heterogeneous infrastructure regulation at the municipality level remains a barrier to a rapid deployment of telecommunication infrastructure. Municipalities should adapt regulation to guidelines to improve standardization issued in January 2024. As of now, 18 municipalities out of 84 have adopted it, but many municipalities lack technical knowledge to apply them. The creation of a one-stop digital shop related to the deployment of (digital) infrastructure (ventanilla unica digital para el despliegue de infraestructura), as done in Peru and as proposed by the Telecommunication Infrastructure Action Plan 2024-2025, could help streamline the administrative burden. However, the need for resources to frequently update the platform following changes in municipal regulation is a challenge to its implementation.
There is room for improving regulations affecting the deployment of digital infrastructure. Passive infrastructure sharing of duct infrastructure for optic fiber is compulsory but unregulated. Despite existing regulation for access poles and ducts the incumbent owner of the infrastructure sets high prices for sharing it and delays in answering requests from other operators (SUTEL, 2024[53]), thus limiting de facto competition for fixed telephony and high-volume data transmission. Tariff and procedures for sharing ducts infrastructures for the deployment of optic fibre by new operators should be regulated. In addition, the resolution of conflicts on access to essential infrastructure is very lengthy and can take more time than established (up to three years), thus causing further delay in the deployment of fiber optic. The Telecommunications Superintendence (SUTEL), which oversees the conflict resolution mechanism, should speed up conflict resolution by devoting more resources to it. Installing new ducts is also subject to a complex authorization process by the Ministry of Public Works and Transport that could be streamlined. Promoting the development of municipal regulation to allow for using new and less invasive techniques for installing optic fiber (micro trenches), and making information on all existing duct infrastructure public and available on-line, would help spread digital infrastructure more rapidly.
Fostering competition in key goods and services markets, a pending challenge for Costa Rica as analysed in previous OECD Economic Surveys (OECD, 2016[5]; OECD, 2020[7]; OECD, 2023[8]), would improve trade performance. Costa Rica’s weak competitive environment increases firms’ trade and input costs, thus reducing their competitiveness and capacity to export, while also reducing FDI attractiveness. Weak competition also discourages domestic firms from investing in innovation to compete by differentiating their products and improving efficiency rather than on low wages.
Complex regulations and the presence of dominant state-owned enterprises often acts as a barrier to entry in key sectors such as the transport services (road and water freight, cargo handling), thus leading to high costs to import and export. The quality and the deployment of core infrastructure services, such as electricity and fixed-broadband telecommunications, is also negatively affected by weak competition in network sectors. This has repercussion on the attractiveness of FDI in electricity intensive sectors (e.g., semiconductor) or business services in ICT. Finally, the presence of high tariffs in several agriculture products limits competition and reduces trade opportunities in an important sector of Costa Rican economy, as discussed above. Costa Rica’s successful experience with the opening of the mobile telecommunications sector, which led to higher employment and greater access to mobile services at lower costs (OECD, 2020[7]), highlights the numerous benefits of fostering competition.
Other than regulatory barriers and distortions induced by high public ownership, Costa Rica has room to improve the effective enforcement power of the Commission to Promote Competition, one of the two competition authorities. Fully functional competitition authorities disposing of the capacity of sanctioning anticompetitive practices, such as cartels and abuses of dominant position, are essential to effectively reduce market concentration, encourage firms efficiency, create a wider choice for customers (firms and households) and reduce prices and improve quality.
Costa Rica has one of the most stringent product market regulations among OECD countries (Figure 4.26, Panel A), resulting from complex regulations, barriers in services and network sectors and distortions induced by high public ownership (Figure 4.26, Panel B). Streamlining regulatory bottlenecks would support the semiconductor roadmap strategy (Box 4.6), which is a key element of the current Costa Rican trade development policy. For example, the use and trade of chemicals widely used in the semiconductor sector currently requires an authorization by the Ministry of Health that takes more time to be processed than the 15-day delay prescribed by a Decree.
Costa Rica has ample opportunities to boost competition in its goods and services markets by streamlining the high regulatory burden acting as a barrier to entry, as analysed in Chapter 2. Despite having taken recent positive initiatives in this direction, such as the establishment of the Investment Single Window Facility and the programme “Le Dejamos Trabajar“, there is not yet a virtual one-stop shop where firms can complete all administrative requirements at once and online. Continuing to extend one-stop windows for business creation around the country to facilitate that all administrative requirements to set up formal firms can be met at once (see Chapter 2) would help business creation. Also, regulatory restrictions of trade in services, which are overall low in Costa Rica in comparison with most OECD countries (Figure 4.27), have room for improvement in sectors like accounting, bookkeeping and tax consultancy and transport services (water, freight transport by road, cargo handling). For example, limits to foreign equity shares and the obligation for freight carriers to file tariffs with the regulator are major factors behind the high level of restrictiveness in freight transport by road.
Export business environment is negatively affected by high prices of key input sectors (electricity, transport, banking, insurance and petroleum-derived fuels), some of which subject to tariffs and price controls, remain state monopolies or are dominated by state-owned enterprises (SOEs). Costa Rican exporting firms have to pay higher costs for energy, water, transport and telecommunication services than their regional peers, thus suffering a competitiveness loss. The cost per kWh for business in Costa Rica (0.24 USD in Marchborder 2024) is higher than in the United States (0.145 USD in March 2024) and other countries in the region (GlobalPetrolPrices.com, 2024[54]) and the average monthly cost of fixed-line broadband in Costa Rica (46 USD) is above the average across OECD countries (37 USD) and more than twice as much as expensive than in Chile, Brazil Peru and Colombia (cable.co.uk, 2024[55]). High energy prices, for example, seriously hamper the global competitiveness of Costa Rican exporting companies. A reform of the electricity sector recently tabled in the Legislative Assembly (see also Chapter 3) has the potential to open the electricity sector to competition, which could reduce electricity prices. Removing regulatory distortions in the banking sector (see Chapter 1) would also increase competition, facilitating access to credit by Costa Rican firms at better terms.
Source: OECD Product Market Regulation (database).
Services Trade Restrictiveness Index by services sector, from 0 (“best”) to 1 (“worst”), 2023
Note: The OECD STRI collects information on services trade restrictions across 22 services sectors. The project has two distinct but complementary instruments: a services trade regulatory database and a services trade restrictiveness.
Source: OECD Services Trade Restrictiveness Index (STRI) (database).
The Regulatory Authority for Public Services (ARESEP) sets tariffs in the energy, water and transport sectors, while the Telecommunication Supervisor (SUTEL) regulates telecommunication services and is in charge of setting tariffs for the services that are not subject to market competition. The way tariffs are set reduces competition among regulated companies that have no incentive to achieve productivity gains and increase efficiency, charging high prices for key business inputs such as freight transport, energy and telecommunication services (OECD, 2020[7]). Adopting alternative tariff methodologies, such as price- and revenue cap regulations, would create incentives for regulated firms to improve productivity and contribute to reduce business operational costs.
Regulation in digital markets is weak (OECD-WBG, 2024[56]) and could be strengthened to improve fair trade, contestability and guarantee use and access to data. SUTEL has recently launched a study on the Digital Mobile Ecosystem. The competition authorities should continue assessing the degree of competition in digital markets. Digital platforms in Costa Rica could be explicitly prohibited from grating preferential treatment on their own products over those offered by third party providers in ranking or search functionality.
Costa Rica has recently taken bold actions to eliminate anticompetitive regulations in professional services and in the rice industry. These actions followed findings from the competition authority and are in line with analysis and recommendations of previous OECD Economic Surveys. Some of the Presidential decrees eliminating compulsory minimum tariffs in fifteen professional services have already been implemented, but others have been challenged in court and either are pending a final decision or have been annulled. For four professional services authorities have filed a bill to eliminate compulsory minimum tariffs. This would help to boost competition and reduce costs of key professional services for firms, especially SMEs, as larger firms tend to internalise these services. Positive steps have also been taken to open the rice sector, where import tariffs were reduced (from 36% to 5%) and inefficient price-setting regulation was eliminated. Since their adoption the volume of rice imports increased at the expense of less productive domestic production and counterfactual simulation estimates that the measures had a beneficial impact on the retail price of rice, which otherwise would have been higher (between 10% to 25%) (BCCR, 2024[57]).
Following recommendations from the competition authority to increase competition in the passenger and freight transport market could help Costa Rica improve mobility and reduce trade transport costs. Reforming the concession system for the provision of public transport services by eliminating the monopoly power of current incumbents, which de facto enjoy a limitless automatic renewal of concessions (Vargas Irola and Velazquez Gonzalez, 2021[58]), and replacing it by competitive public tenders, would help improve mobility and reduce traffic congestions as well as pollution. Reforming the water freight market through a change in legislation that eliminates the possibility of price and market distribution agreement (COPROCOM, 2021[59]) would reduce logistic costs and better support Costa Rica’s export-led development strategy.
An independent and well-resourced competition authority is a key pillar of a solid competition framework. The Superintendence of Telecommunication (SUTEL), which also operates as regulatory authority, has sufficient resources to fulfil its functions, and already issued most of the secondary regulation required to ensure its operational, technical and administrative autonomy. However, despite regular increases, the Commission to Promote Competition (COPROCOM) continues to have a budget per staff below that of both OECD and non-OECD countries (Figure 4.28, Panel A). The budget situation has impeded adding new employees and acquiring new equipment (OECD, 2024[60]). COPROCOM also must rely on international support to carry out market studies, which joint with opinions are essential for implementing pro-competitive reforms, as recent initiatives in professional services, originated by the authority investigations, show. Around 40% of the budget set out in the competition law has been allocated by 2025 (Figure 4.28, Panel B), representing a 20% rise from 2024. A fully functional competitive authority can help to reduce the cost of key goods and services, which would support firms’ competitiveness. It would be particularly beneficial at the current juncture when authorities are taking bold steps to improve regulations and open key sectors of the economy to competition (e.g., professional services, electricity market, rice sector).
Note: The OECD CompStats database covers data from competition agencies in 77 jurisdictions, of which 38 jurisdictions are OECD jurisdictions (including the European Commission). Data are divided into four geographic regions: Americas (18 jurisdictions), Asia-Pacific (15 jurisdictions), Europe (34 jurisdictions) and Middle East and Africa (10 jurisdictions). In Panel B, the budget for 2025 corresponds to the one the Ministry of Finance committed to provide in the 2025 budget.
Source: OECD CompStats (database); and OECD calculations based on COPROCOM.
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