Economic Growth, Business and Costs

High social charges, excessive regulations for businesses and the high price of labor are factors that prevent Costa Rica's economy from reaching its growth potential.

Thursday, March 11, 2021

In Costa Rica, establishing a personally owned company without employees is up to three times more expensive than what it can cost in a country that belongs to the Organization for Economic Cooperation and Development (OECD).

An analysis prepared by the Central Bank of Costa Rica (BCCR) states that in OECD countries the average cost of establishing a personally owned company without employees amounts to $100, which is considerably less than in Costa Rica, which is around $300. According to the monetary authority, in Chile and Mexico the cost is practically zero.

Rodrigo Cubero, president of BCCR told Nacion.com that "... Costa Rica became very expensive for us, we have to lower the cost of social security charges, also reduce electricity rates and regulation costs."

See "Production Costs and the Future of Investments"

The excess of processes that companies must carry out before public entities are among the obstacles that prevent the country from reaching its potential growth, which could be 3.5% of the gross domestic product, says the hierarch of the Central Bank.

For Pilar Garrido, head of the Ministry of Planning and Economic Policy, the issue is not only about "... modifying procedures, but rather a regulatory improvement linked to specific requirements of the economy. For example, companies that require a certain level of greater flexibility in not charging social security contributions to their payroll."

In addition to social charges and excessive regulation, companies face high operating costs and in some cases companies choose to downsize or close their operations.

At the end of 2019, Vicesa, a company involved in the manufacture of glass products, announced that it had made the decision to scale down its operations in the country. On that occasion, the company's strongest argument was that in Costa Rica it pays 47% more for electricity, compared to what it pays for electricity at its plant operating in Guatemala.

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