Costa Rica sets up UAE for Central America trade

WAM

• Deal would be Costa Rica’s first in Middle East
• Cepa would boost IT, tourism, energy, air transport and logistics
• Mexico also seeking UAE investment

Talks to establish a comprehensive economic partnership agreement with Costa Rica could signal a new push by the UAE to strengthen trade ties in Central America.

Manuel Tovar Rivera, Costa Rica’s minister of foreign trade, said the proposed Cepa would boost collaboration between the wider Central America and Middle East regions.

Experts told AGBI that Mexico may also offer the UAE opportunities to gain greater access to the US market.

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Last week Mexico’s Ministries of Foreign Affairs and Finance completed a series of visits to the Gulf where they met with sovereign wealth funds and investment promotion authorities.

Investment opportunities arose on infrastructure projects under development in the south east of the country.

These included the Mayan Train – a 1,525km intercity railway in Mexico that will traverse the Yucatan Peninsula and is scheduled to launch by the end of this year.

Another, the Olmeca Refinery, is a multi-billion dollar facility which plans to process 170,000 barrels per day of crude when it starts operating later this year.

A statement from the Mexican government said that talks also focused on sectors such as food, water technology, extraction industries, tourism and agriculture, as well as energy transition.

“It would be interesting for the UAE, as it seeks to expand its Cepa network, to explore other countries in the region that would also welcome investment in those sectors,” Antonio Ortiz-Mena, partner at Dentons Global Advisors, said.

He added that Mexico is receiving significant amounts of foreign investment from countries seeking to re-shore near the US and have access to that market via the US-Mexico-Canada Agreement. 

Mexico and the US trade $1.8 billion per day and the UAE could play a part in that, he said.

Mexico also announced last week it is in exploratory talks to issue sukuk, or Islamic bonds, in an effort to tap new investors, a move that is likely to grow its ties with the GCC region.

“This is a development that is worth watching if it materialises,” Bashar Al Natoor, global head of Islamic Finance at Fitch Ratings, said.

“Sovereigns typically issue sukuk because they want to develop the Islamic finance market.

“With Mexico, the intention is expected to be to mainly diversify its funding sources and tap into the GCC.”

Last June Dubai International Chamber opened a representative office in Mexico City, four years after opening in Panama.

Mexico is the UAE’s second-largest trading partner in Latin America, with bilateral non-oil trade surpassing $2.1 billion in 2022, up 36 percent compared to 2021.

Across Central America, the value of Emirati investments has exceeded $673 million, including $50 million in the form of grants for renewable energy projects.

Dr Thani bin Ahmed Al Zeyoudi, minister of state for foreign trade, said the Cepa talks with Costa Rica will lay the foundations for building a ”significant and influential” platform to future-proof economic and trade relations. 

Non-oil trade reached AED216 million ($58.7 million) in 2022 up 19 percent compared to 2021.

The establishment of a Cepa with the UAE will be Costa Rica’s first free trade agreement with a country in the Middle East.

Ortiz-Mena said that there is still “significant unexplored potential” between the two countries and Cepa talks could particularly boost sectors such as IT, tourism, renewable energy, air transport and logistics.

“Costa Rica would be a good destination for UAE investments seeking stable returns with a long term outlook,” Ortiz-Mena said.

“For Costa Rica, it would be a welcome diversification away from US and Chinese investment, which can generate tensions amidst complex great power interaction.”

Emirates Development Bank last week signed a deal with Paraguay’s Development Finance Agency to build a partnership in employee skill training, agtech and food security financing, especially in support of SMEs.

The UAE International Investors Council and ProPanama, the national authority for investments and export promotion, signed an agreement in March focused on infrastructure, IT, renewable energy, healthcare, pharmaceuticals, logistics, ports, food security and cybersecurity.

Panama is a major commercial centre, especially due to the importance of the Panama Canal.

The deals are part of a wider push into Latin America by the UAE, which accounted for 77 percent of the $4 billion investments from the Gulf region between 2016 and 2021.