Posted in Economic Observations on July 26, 2011
Economics has always been my passion so I thought I’d create a new section here on the website devoted to ‘economic observations’ in Colombia.
My first article in this section is on the astronomical car prices in Colombia and I wanted to suggest the probable causes of the high prices here (you may have sensed I have been trying to buy a car here and am slightly bitter! )
Here are my initial thoughts:
1) High import duties and taxes – 30% plus 16% VAT (or IVA as it is known here)
2) High shipping costs – the US is fairly close but European, Japanese and Korean cars have a fair distance to travel
3) Non Tariff barriers -most specifically it is illegal in Colombia to import second hand cars. There are various other bits of red tape and form filling that makes importing of cars challenging and costly, not least the requirement to have an import license if you want to avoid an additional 10% agent fee on total import costs (after import duty and taxes have been added!)
4) Lack of supply – there are no Colombian car manufacturers and as above high import duties and no second hand car import market combine to reduce supply of cars. Note some foreign car manufacturers have production plants in Colombia such as Renault but prices are still very expensive.
5) Transport costs. From the coast to major cities there a large tolls on the main roads, particularly high for large lorrys.
6) Corruption and collusion – I have no evidence whatsoever to back this up but I wouldn’t be surprised if the large car importers and sellers had some ‘special treatment’ from the authorities, stifling competition and allowing these powerful companies to maintain high profit margins. Possible price and supply collusion between the large car importers and sellers aswell.
7) Huge demand driven by large population, growing middle class and mediocre public transport system