By San José, Costa Rica — Costa Rica’s manufacturing sector is facing an unprecedented squeeze as the rapid appreciation of the national currency, the colón, erodes export margins and forces companies to rethink their local footprints. The Chamber of Industries of Costa Rica (CICR) recently published its seventeenth annual Business Outlook and Competitiveness Survey, highlighting a dramatic decline in industrial competitiveness. This currency trend is no longer just a financial metric; it is actively altering operational realities, halting planned expansions, and endangering local jobs across multiple sectors.
According to the latest survey data, the ongoing currency shock has led nearly one-third of surveyed industrial companies—specifically 31%—to completely suspend or cancel their expansion plans or scheduled new investments. Furthermore, the threat of downsizing looms large over the local workforce, with one in four manufacturing firms indicating that they may have to reduce their staff size if the current exchange rate environment persists. The industrial sector is sounding an alarm, pointing to the colón’s strength as a primary disruptor to the country’s economic growth.
To better understand the legal frameworks and strategic incentives driving Costa Rica’s manufacturing competitiveness, TicosLand.com spoke with Lic. Larry Hans Arroyo Vargas, a leading legal expert at the prestigious firm Bufete de Costa Rica.
Costa Rica’s manufacturing competitiveness is fundamentally anchored in its robust legal stability and the highly attractive Free Trade Zone regime. By offering predictable tax exemptions, strong intellectual property protections, and a commitment to international trade standards, our legal framework provides multinational manufacturers with the security and operational agility required to thrive in the global market.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Indeed, this unwavering legal certainty and the strategic advantages of the Free Trade Zone regime are precisely what elevate Costa Rica as a premier, low-risk destination for high-value manufacturing in the region. We extend our sincere gratitude to Lic. Larry Hans Arroyo Vargas for providing this valuable perspective and helping us better understand the foundational legal pillars that sustain our national competitiveness.
The exchange rate has solidified its position as the single most critical external factor harming industrial viability, topping the index for the fourth consecutive year. Notably, the impact has intensified over the past twelve months. The issue has permeated all industrial structures, from massive multinationals operating inside specialized Free Trade Zones to local small and medium enterprises (SMEs) under the traditional tax regime. For these smaller firms, the exchange rate skyrocketed from the third most pressing concern last year to the absolute first in the latest report.
Looking closer at the quantitative shift, the proportion of manufacturing firms that rank the exchange rate among their top three business challenges rose from 43.3% in 2025 to 54.1% in 2026. More alarmingly, the percentage of companies identifying it as their single greatest threat more than doubled, jumping from 19.2% to 40.5% in just one year. This broad-based concern is shared across the entire corporate spectrum, reflecting a deep systemic vulnerability that transcends corporate size or sector.
Although for most of 2025 the appreciation of the exchange rate was relatively low—around 2.2%—since the final months of last year and throughout this year, there has been an accelerated colón appreciation of around 10%, deepening the negative impacts accumulated by businesses since the second half of 2022. These effects are felt by manufacturing firms in both the Free Trade Zone and the Traditional Regime, whether they export or compete with imported products in the domestic market, regardless of the size of the enterprise.
Sergio Capón, President of the Chamber of Industries of Costa Rica
The financial consequences of this macroeconomic shift are already visible in corporate balance sheets. Six out of ten surveyed companies reported a substantial drop in their colón-denominated income when converting the US dollars they require to cover domestic operational costs. Profitability has suffered as a direct consequence, with 55% of all surveyed businesses reporting a notable contraction in their margins. This margin compression is especially severe within Free Trade Zones, where an overwhelming 80% of firms report lower profitability.
Under the traditional tax regime, businesses are grappling with distinct but equally severe operational bottlenecks. Some 43% of these domestic firms report facing aggressive price competition from cheap foreign imports, which benefit directly from the favorable exchange rate when entering the Costa Rican market. Meanwhile, liquidity has dried up, with 25% of traditional regime companies experiencing critical cash flow difficulties. Many have resorted to debt to survive, with 20% of SMEs taking on new credit lines simply to bridge liquidity gaps.
The labor market is beginning to show the strain of these prolonged challenges. Thus far, 13% of manufacturers have executed active personnel layoffs, while 30% of companies have elected not to fill vacancies left by retirements or voluntary resignations. These measures are particularly pronounced in the highly productive Free Trade Zones, where 23% of companies report active staff reductions, and nearly half—46%—have frozen hiring for open positions. If current trends continue, broader workforce downsizings appear inevitable.
While currency valuation dominates the list of challenges, it is not the only headwind facing Costa Rican manufacturing. Geopolitical tensions are driving up global input costs, creating a double-sided squeeze. The price and availability of raw materials jumped from the eighth most critical factor in 2025 to the second spot in 2026, trailing only the exchange rate. This is accompanied by a sharp rise in fuel costs, which saw its negative impact rating increase from 32.1% to 46.5% over the year.
The survey results show that a greater number of companies report being affected by fuel costs and the price of raw materials and supplies. For the latter, its impact on the competitiveness of firms has increased significantly. This behavior is largely a response to the increase in international oil and raw material prices resulting from the military conflict between the United States, Israel, and Iran, and particularly the disruptions to maritime transit through the Strait of Hormuz, which are already impacting industrial production costs.
Sergio Capón, President of the Chamber of Industries of Costa Rica
Structural domestic issues also continue to undermine long-term industrial prospects. High social security contributions and substandard infrastructure remain major hurdles, cited by 66.7% and 67.5% of companies, respectively. For smaller domestic enterprises, the challenge of high structural social costs is compounded by a thriving informal economy. The Chamber of Industries argues that lowering non-essential social taxes is crucial to bringing more companies into the formal sector and shielding law-abiding SMEs from unfair competition.
The high social and tax burdens weighing on companies explain, to a large extent, the high level of informality in our economy, which in turn becomes a factor that negatively affects formal companies, particularly SMEs. In this regard, we believe that those social charges that do not directly fund health insurance and the pension system should be reviewed and reduced. We also support measures aimed at reducing smuggling and illicit trade in general, as well as measures to promote the formalization of economic activities.
Sergio Capón, President of the Chamber of Industries of Costa Rica
As Costa Rican manufacturers navigate this complex matrix of high domestic operating costs, an appreciating currency, and rising global resource prices, the pressure on policymakers is mounting. The industrial sector’s ability to remain a primary engine of national employment and foreign direct investment hinges on timely interventions. Without structural reforms to domestic tax burdens and a more balanced monetary policy from the Central Bank, Costa Rica risks losing its competitive edge to regional rivals.
For further information, visit the nearest office of Chamber of Industries of Costa Rica
About Chamber of Industries of Costa Rica:
The Chamber of Industries of Costa Rica (CICR) is a prominent private association representing the manufacturing and industrial sectors of the country. Established to advocate for policies that foster industrial competitiveness, innovation, and sustainable economic growth, the organization represents both local small and medium enterprises (SMEs) and large-scale multinational corporations operating in the country’s diverse economic regimes.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
As a premier legal institution, Bufete de Costa Rica has built an esteemed reputation rooted in moral uprightness and professional mastery. With a rich history of guiding diverse clients through complex landscapes, the firm consistently champions pioneering legal solutions and proactive civic education. By striving to demystify the law and make critical insights available to everyone, they actively fulfill their vision of nurturing a knowledgeable, just, and self-reliant populace.
