Costa Rica: Regional Dynamo

Costa Rica has harnessed “Pura Vida” or pure life to more traditional industries, such as agriculture and tourism, and has been one of Central America’s success stories in recent years thanks to an export-driven economy based on medical technology and services.

But GDP growth is projected by the World Bank at 3.5% in 2025 and 3.6% in 2026, down from 4.3% in 2024 and 5.1% in 2023, as other Central American countries threaten to overtake the region’s dynamo.

Add a dip in tourism that cost 22,000 jobs, record levels of violence due to increased narcotrafficking, and an election looming this year, and Costa Rica would seem to be facing significant problems. This will force the country to rely more on economic drivers like its zona francas (free trade zones) and the med-tech manufacturers that populate them.

Some observers see the past two years as a hiccup rather than a turning point, however.

“I’m very optimistic on a forward-looking basis,” says Christopher Mejia, emerging markets sovereign analyst at T. Rowe Price. “Costa Rica has made a lot of positive changes over the last five years. They’ve cleaned up their fiscal house, they’ve undergone two International Monetary Fund [IMF] programs, and they’ve put together very strong reform packages under those programs. They are now a high-value-add export economy, they are very strategically located, they have a highly educated workforce, they’ve got the right business incentives, and they’ve got a strong relationship with the US.”

Costa Rica’s economy is still dynamic compared to its regional peers’, Mejia argues, given the structural changes the government has made. It is also a high-income economy, slightly below Panama’s but ahead of its other Central American peers, which would need to grow by at least 6% per annum to catch up. GDP per capita is projected at $18,700 to $19,100 for 2025, according to Standard & Poor and IMF projections.

Although it remains an export-intensive economy, over the past several years Costa Rica has made efforts to move away from traditional agricultural products like bananas and pineapples to med-tech devices and non-tourism services. According to the Costa Rican Foreign Trade Promotion Agency, exports were set to rise 6% year-on-year in 2025, to $34 billion. Medical devices lead the way at 44% of the market—a first—followed by knowledge-intensive services at 25% and traditional agricultural exports at 10%.

Part of the shift is down to improvements in port infrastructure at Puerto Caldera and an APM terminal on the Caribbean side. Future investment in the medium to long term will be required to improve shipping times to the US and open the Asian market, however. This would reduce supply chain bottlenecks, help the economy branch out from tourism-heavy investment on the Caribbean side, and attract more companies to the zona francas.

These tax-free zones offer 100% exemption from income tax for eight to 12 years as well as full VAT exemption on local purchases and imports, in exchange for foreign-owned businesses locating themselves outside of the greater metropolitan area around the capital of San José and meeting investment, employment, and operational requirements.

Over 600 multinational companies operate in one of the zona francas, according to PROCOMER, Costa Rica’s investment and export promotion agency, producing catheters, diagnostic equipment, cardiovascular devices, prosthetics, surgical and other medical supplies. These include Allergan, AVNA, Cardinal Health, Hologic and Medtronic.

Other major companies with a presence in the country include Amazon, Intel, Microsoft, Hewlett-Packard, Proctor & Gamble, Boston Scientific, Bank of America, and Equifax. US and European companies, exemplified by Bank of America and Equifax, are taking advantage of Costa Rica’s highly skilled labor force to transfer back office operations, accounting, and services there.

While foreign direct investment dropped in the first half of 2025, this followed a record $4.3 billion in 2024. Businesses located in zona francas have excelled in attracting FDI, with more than 70% coming from the US, mainly in health services and life sciences. Costa Rica racked up more than $5 billion in FDI in 2024, making it third globally and the leader in Latin America, according to the Greenfield FDI Performance Index.

External Challenges

Costa Rica’s real challenges are external, T. Rowe Price’s Mejia argues, especially the current geopolitical climate, a regional increase of narco-activity, and signs that the Dominican Republic and Mexico want a piece of the medical device trade.

Perhaps because of its noticeable high-value export portfolio, Costa Rica has been hit with 15% tariffs by the US and has had to negotiate separately from peers such as Ecuador, El Salvador, and Guatemala, which have seen their tariffs reduced.

The bilateral relationship between Costa Rica and the US nevertheless remains close, says financial analyst Daniel Suchar Zomer, “and that creates opportunities for Costa Rican exporters to negotiate targeted tariff and standards access while also pursuing diversification into Asian markets—semiconductor supply chains, medical exports to East Asia—where demand for sophisticated goods and services is growing.”

This could include access to the Asian and Latin American markets and negotiating country-specific deals less than the 15% tariff that the US has on Costa Rican goods. Exporters that can reroute or diversify markets will also find demand for their services such as medical exports to East Asia or entering the semiconductor supply chain.