Costa Rica stands out as a country where a good portion of its markets have little competition, which affects the poorest, says OECD Economic Survey of Costa Rica published presented Tuesday in San José by the Paris-based Organisation for Economic Co-operation and Development (OECD) Secretary-General Angel Gurría and Costa Rican Foreign Trade Minister Alexander Mora.
The report points out that in Costa Rica, product market regulations are more restrictive than in any OECD country except Turkey, and also compare unfavorably with other countries in Latin America, including Chile, Colombia, and Mexico.
Market regulations are the impediments for more participants to offer their products.
Alvaro Pereira, the chief economist of the OECD, said Costa Rica stands out as a country where a good portion of its markets has little competition, which affects the poorest.
Pereira argued that in Costa Rica a third of the sectors are not in competition. Examples cited: electricity, distribution of gasoline, distillation of alcohol, sugar, rice, and shipping.
“This is because where there is no competition, prices are higher and it is the poor who have to devote a greater part of their income to paying them,” Pereira explained.
“Regulations that restrict competition can hinder improvements in terms of efficiency, innovation and resource allocation to increase productivity, and contribute to increasing inequality by raising consumer prices and making wage distribution more extensive”, notes the report. Precisely, the report reiterates, as it did in 2016, that while in Latin America inequality decreases, in Costa Rica it rises.
For the head of the OECD, the answer to why many in Costa Rica ask themselves why the country so expensive, the answer is lack of competition. “Competition is, in the end, to benefit the consumer,” said Gurría.
He added that the country also requires strengthening the Commission to Promote Competition and make it an autonomous entity, outside the Government.
Consulted on these OECD recommendations, the economic coordinator of the next Government, Edna Camacho, who participated in the presentation of the report, commented that they agree to strengthen the Commission to Promote Competition.
“The Commission can do many things by administrative means but it has few resources, and it has not always had the same level of independence, that entity must be strengthened, it is one of the main recommendations that the report is making in relation to the competition,” said Camacho.
In the presentation of the report, both Gurría and Pereira were emphatic in the need to take measures to reduce the government deficit in at least an amount equivalent to 3% of production.
Main recommendations
The recommendations made in the report highlight the need to implement a comprehensive fiscal package, with measures to curb expenditures and raise revenues. The report also recommends measures to combat the high proportion of workers in informal jobs, which is a source of inequality and a drag on productivity. A comprehensive strategy is needed to ensure compliance with labor regulations as well as continued efforts to simplify the complex structure of the minimum wage.
In addition, boosting the productivity of the labor market productivity requires encouraging the entry of competitors. In this respect, barriers to entrepreneurship, antitrust exemptions and state control are an obstacle in many sectors. The report recommends improving the governance of state enterprises in accordance with OECD standards, establishing one-stop shops for registering and issuing business licenses, speeding up insolvency proceedings, eliminating antitrust exemptions and improving trade facilitation.
Restore fiscal sustainability and make growth more inclusive
“Costa Rica is a development success story, demonstrating how countries can achieve high levels of well-being and robust growth that benefit citizens while protecting the environment,” Gurría said. “Since the OECD accession process kick-started in 2015, Costa Rica has accelerated efforts to enact policy reforms that will help it converge toward OECD best practices, and this process will continue. The momentum needs to be sustained and bold actions taken in order to continue to pave the way to a better and brighter future.”
The report says that sustained economic progress will hinge on restoring the sustainability of public finances, which remain a major threat to economic stability, growth and living standards. With deficits rising, debt payments soaring and the ratio of public debt to GDP doubling over the past nine years, the Survey recommends that Costa Rica implement a comprehensive fiscal package, with measures to curb expenditures and raise tax revenues.
Poverty, income inequality and gender gaps in Costa Rica are low by Latin American standards, but high when compared to OECD levels, driven by stubbornly high informality, low labor participation rates and high unemployment, particularly among women and youth.
Reforms to reduce labor market informality, encourage women’s labor market participation, improve educational outcomes, strengthen competition, lower regulatory burdens and boost infrastructure are priority areas to stimulate productivity and make growth more inclusive, the Survey said.
The OECD
The OECD’s 35 members are: Austria, Australia, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States.
Three countries – Colombia, Costa Rica and Lithuania – have been formally invited to become members of the Organisation, and are currently in the process of accession.
Additional reading:
- At a glance indicators, Executive Summary with Assessment & Recommendations, Overview of the Economic Survey
- Productivity in Costa Rica, Research Findings
- Sharing the benefits of growth more widely, Blog post
- Remarks by Angel Gurría, Secretary-General, OECD
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