Why Uruguay is the most expensive country in Latin America and one of the most expensive in the world

When a resident of Rivera, a Uruguayan border city, goes to the local supermarket this week, he sees that the price of a 180-gram tube of toothpaste is 243 pesos (US$6.20).

If you go to a Brazilian supermarket – something for which you only need to cross the street, because the city continues without barriers with the name of Sant’Ana do Livramento -, that same toothpaste – same brand, same weight, same version, produced in the same plant in São Paulo – you can buy it for 6.99 reais (US$1.28).

Toothpaste is just one example – perhaps one of the most notable – that Uruguay is an expensive country.

The importer brings it into the country at a price, but when it reaches the public its average price almost triples, according to research carried out by the Center for Development Studies (CED) at the request of the Central Bank of Uruguay and published in February. .

More pronounced is the difference in a bar of soap or deodorant, whose price in a store or supermarket is multiplied by up to 6 compared to the value at which it entered the country.

Based on data collected by the World Bank, the CED compared the prices of some 600 products in Uruguay and 43 other countries over time, and found that on average they were 27% more expensive in the South American country.

Furthermore, developed European countries such as France, Germany or the United Kingdom showed lower prices than those paid in Rivera or Montevideo.

Only nine – Japan, Finland, Israel, Ireland, Sweden, Denmark, Switzerland, Norway and Iceland – were more expensive.

Compared to Latin America, products in Uruguay cost more than twice as much as in Bolivia, 80% more than in Mexico and 20% more than its neighbors Brazil and Argentina, partners in Mercosur and from where a good part of the imports arrive without tariffs.

In products of hygiene and cleanlinessUruguay is 58% more expensive than the average of countries, according to the study. In food and non-alcoholic beverages, 55%. And in articles of computing and electronics, 43%.

This phenomenon occurs more strongly in areas in which there is practically no national production – or does not exist at all – and must be imported, Ignacio Umpierrez, economist and researcher at the CED, explained to BBC Mundo.

And the list of items that are not produced in Uruguay is very long.

Umpierrez added that the higher prices paid by Uruguayans do not have to do with a temporary issue of the value of the Uruguayan peso against other currencies, but rather It is a fact that has endured over time.

“It is something that responds to a country effect,” he said.

By “country effect” he refers to some conditions that make the country expensive.

The researcher and a group of colleagues found that the Uruguayan market – which is small because 3.5 million people live in the country – is concentrated in a few companies that account for a large part of these imports.

“In concentrated markets, the pricing power of companies is greater”he pointed.

As a consequence of this lack of competition, they found that the profit per product was almost always more than half of the price paid by the final consumer. That is to say, something that was imported for 10, the average citizen pays more than 20.

Umpierrez described these margins as “relatively high”, although he said he did not know how many intermediaries the products pass through between the importer and the final consumer.

Uruguayan economist Sebastián Fleitas, professor of economics at the Catholic University of Chile specialized in competition and market issues, pointed out an aspect of international trade that the country cannot change: “Uruguay is far from the world, and that is why it has higher transportation and logistics costs“when the products do not come from their neighbors.

He added that with most countries there are higher tariffs and fees than in other regions of the world, in addition to the obligation to hire a customs agent for each import.

Fleitas told BBC Mundo that Uruguay is expensive because of “two central problems”: the lack of competition and sectors regulated by the State“where regulation has serious problems.”

“It is a small country, where we all know each other and where there is a lot of interaction between regulated parties and regulators, which is not illegitimate but which poses some additional challenges for the defense of competition, in lobby control legislation and that type of things that they do. that disarming this expensive country is a set of small battles, but each one demands a lot of political capital,” he argued.

The expert said that there is a long way to go, but that There are things that can be done to make the country cheaper.

These regulations create barriers, such as health records for food, beverages, hygiene products, and more.

“In order to enter a product into Uruguay, it must be health registered with the Ministry of Public Health,” explained Umpierrez. But large companies “basically own their technical data sheet due to exclusivity issues or commercial agreements,” he added.

This implies that, for example, if a random Uruguayan company wanted to import that toothpaste by purchasing it for US$1.28 from a Brazilian supermarket or wholesale store, the Uruguayan State would not allow it because the company does not have the technical data sheet for the product.

And it doesn’t matter that it is exactly the same toothpaste that the multinational subsidiary enters.

“If we are not protecting an industry, we are not protecting employment, are we perhaps protecting the monopoly income of an importer”asked economist Alfonso Capurro, from the local consulting firm CPA/Ferrere.

Capurro stressed that there are regulations that “genuinely seek to protect the consumer,” but that there is “inertia and there is a set of accumulations of different regulations that have been built over time in the form of a sediment.”

“No one made sure that this set of regulations were overlapping and preventing the market from functioning better,” he said.

CPA/Ferrere prepared another study at the request of the Central Bank, in this case regarding the prices of fruits and vegetables.

Capurro, one of the economists who worked on this research, explained to BBC Mundo that the importation of some of these foods is prohibited by phytosanitary rules, so only local production should be marketed.

But according to what he said, this regulation is not used for health purposes but rather as a protectionist measure, since In times of internal scarcity, governments have enabled entry.

“That makes fruits and vegetables more expensive on average than they could have been if they were imported, and that is an excess price that we consumers pay,” he said.

The study analyzed the value of certain fruits and vegetables in wholesale markets over time in Uruguay and Brazil. Tomatoes, for example, are paid three times as much in Uruguay.

“If you take away those protections from producers, the sector disappears. It is a hidden subsidy,” Capurro remarked.

At the same time, Uruguayan fruit and vegetable producers They have to work in a system with high costsCapurro pointed out.

Capurro explained that another factor that affects high prices is the Uruguayan tax system.

In addition to VAT, some products are levied with other taxes that make them more expensive.

“Our tax system is a bit old, it is very based on direct taxes on consumption and not so much on taxes on people. Less is paid in taxes such as income, but they are paid directly in the goods that are consumed“Capurro explained.

An example of this is fuel. Uruguay has the most expensive litre of petrol in Latin America and the fifteenth in the world – almost half of the price is taxes.

Diesel is also expensive, because a percentage of the price per liter goes to subsidize public transportation, something that is then transferred to the transportation and distribution costs of any product.

At the same time, distribution profit margins – transportation and sales – are high because “truck drivers and service stations are not willing to compete,” Capurro explained.

Something similar happens with electricity; Rates are among the highest in the world, partly due to investments made in the past decade to increase energy production from renewable sources outside of hydro.

Uruguay is the Latin American country with the highest Gross Domestic Product per capita, about US$22,000, and that places it in the category of high income countriesaccording to the World Bank classification.

Each Uruguayan household earns about US$2,500 on average monthly, according to the National Institute of Statistics.

Despite the high salaries in regional comparison, Uruguayans feel that living in their country is very expensive.

In Spain, for example, they earn about US$3,200 a month, and it is not only that they earn more, but that purchases cost 25% less than in Uruguayaccording to the CED comparison.

Even in comparison with countries that are more expensive than Uruguay, the South American loses out.

“Copenhagen is expensive, but for good reasons. People live very well there, earn very good salaries and are happy with that,” Fleitas said.

“We have low salaries for the cost of living level, but at the same time high for productivity levels“said Umpierrez.

The CED economist pointed out the salary factor among those that make the country expensive, because the methods for determining salaries are “quite more rigid than in the rest of the countries” in his research.

What is cheaper in Uruguay than in developed countries It is housing. The average price of a rental in Uruguay is about US$500, while in Spain it is double, according to official figures.

The three economists agreed that The welfare state that Uruguay provides has its costs, and that is transferred to prices.

But some of it is beneficial for the population and some is not.

“What complicates us is that we are expensive for things that do not generate well-being for the population, but rather are income that goes to a few businessmen and a few workers who are in those sectors” with large profit margins, Fleitas summarized.

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