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Why Are Cell Phones So Expensive In Costa Rica?

The price of a smartphone in Costa Rica can be up to double, sometimes more, of its price in the United States. Why are consumers in Costa Rica hit hard for an item that is free of import duty thanks to trade agreements?

 

Tiendas Gollo sold out all 20 iPhone X offered on pre-sale on November 7, each selling for ¢1,024,900 colones and now dropped the price to ¢897,900 to compete with Monge. Esteban Monge / La Republica

The short answer is because consumers must help importers recover the amount invested in the acquisition of the product, import costs that include paying the 13% sales tax (no duty but sales tax is applied), then in the country operating costs and adding a profit margin.

 

Eduardo Cordoba, marketing manager at Gollo explains, “the amount advertised by manufacturers never includes the total that is required to bring the product to the country and that percentage varies depending on the item, the country of origin, brand, delivery time, volume and profit margins.”

The most recent example is the iPhone X (ten), which in stores in the U.S. retails at US$1,000 or about ¢567,000 colones at today’s dollar exchange rate, while the price in Costa Rica in the first week was ¢1,024,000 colones (US$1,805 at the same exchange rate), becoming the single most expensive smartphone for sale.

However, Gollo says it has streamlined its process and can offer the phone at ¢897,000 colones, a price similar to competitor Monger that is offering the item for ¢899.900 colones.

This reality also touches the newest entry by Samsung, the S8 which is selling in the U.S. for US$720 (¢408,000), while in Costa Rica is ¢530,000 colones.

“The goal of the company is always to bring the newest to the local market, a few months after the global launch, in order that Costa Ricans have the latest,” said Mauricio Quesada, Samsung representative.

However, the high prices do not seem to deter Costa Ricans, who respond positively (with sales) to local launches.

For example, Gollo says in less than 24 hours it sold all of the 20 iPhone X on presale announced on November 7, each selling at more than ¢1 million colones.

Despite the high prices, Costa Rica is one of the countries with the highest cellular penetration in the region, this mainly due to the no duties on the product, meaning it still cheaper here than elsewhere in the region.

Also, Costa Rica has one, if not the highest, penetration of cellular lines per inhabitants. Currently, there are 170+ cellular lines per 100 inhabitants.

However, despite the penetration increased 9% this year over last, the value of imports of cellular phones has dropped, hitting a peak in 2015.

According to figures by the Organización para la Cooperación y el Desarrollo Económico (OCDE) and the Ministerio de Ciencia, Tecnología y Telecomunicaciones de Costa Rica (Micitt),  the import of cellular phones in 2012 was US$5.8 million dollars, US$7.5 million in 2013, US$6 million in 2014, US$10.5 million in 2015, then dropping to US$5.4 in 2016. For this year, to June 30, the figure is US$2.1 million.