Caribbean & Central America - March 2021

The United Nations Conference on Trade and Development (Unctad) has ranked Costa Rica first in Latin America and the Caribbean (LAC) for preparedness to support online shopping.

Costa Rica tops the regional ranking in the Unctad Business-to-Consumer (B2C) e-commerce Index 2020, released on 17 February, followed by Chile, Brazil, and the Dominican Republic. It is the only Central American nation in the regional top ten in the index, which gives a score out of 100 for four indicators: account ownership at a financial institution or mobile-money-service provider; the percentage of the population using the internet; a postal reliability index; and secure internet servers per million people.

According to the Unctad report, 68% of the Costa Rican population have an online money account and 86% use the internet. The country scored 63 for postal reliability and 59 for secure internet servers, giving an overall index value of 68.8. This is an increase of 3.7 points from the 2019 edition, enough to see the country rise six places in the global ranking of 152 nations to 56, up from 62.

Costa Rica scores above the LAC average on each of the four indicators. In the region as a whole, 53% of individuals have an online money account and 64% of the population use the internet; and on average LAC recorded a score of 29 for postal reliability and 50 for secure internet servers.

As regards the rest of Central America, Panama ranked 87, up from 90 in 2019. The country scores well for secure internet servers (61) but poorly on postal reliability (26). Honduras ranked 98, down from 96, with generally poor ratings boosted by a postal reliability score of 54. El Salvador ranked 106, down from 105, with only 30% of people with an online money account. Guatemala ranked 108, up from 113, scoring well on internet use (65%) but let down by a non-existent postal service which returned a score of zero. Nicaragua is bottom of Central America, ranking at 122, up from 124 in 2019. According to the Unctad report, Nicaragua also has a poor postal service, scoring two on that indicator.

As shown by these numbers, e-commerce infrastructure in Central America needs serious work. According to Unctad, large local online retailers are much less prevalent in the region, and 60%-90% of B2C e-commerce sales are cross-border shipments, predominantly from the US.

Costa Rica, which has been more politically stable and safer than the rest of Central American for years, has seen increasing e-commerce activity thanks in part to good telecommunications networks and smartphone penetration. The mobile phone penetration rate in Costa Rica was 169% in 2019 according to the latest figures from the telecommunications superintendence (Sutel). Costa Rica’s telecoms sector was liberalised in 2008, in line with legislation approved as part of the Dominican Republic-Central American Free Trade Agreement with the US (Cafta-DR). US multinational technology firm, Amazon, ships directly to Costa Rica, and Chinese online ecommerce platform, Wish.com, has also become a major player.

This process has been helped to a certain extent by regulatory reforms. In recent years Costa Rica has reformed its code of commerce, code of civil proceedings, and its procurement law in order to facilitate the development of e-commerce, according to Guillermo Varela, CEO at Asociación GS Uno Costa Rica, a local business association that works to drive innovation. However, Varela believes the aforementioned reforms are “insufficient”. He says that more changes are needed, highlighting that a digital e-commerce bill first proposed in 2013 has made no progress in the legislative assembly. The bill, which attempted to set out a legal and conceptual framework for e-commerce, was shelved in 2018, and two other bills have also failed to progress, said Varela.

Despite this, e-commerce continues to grow, and the coronavirus (Covid-19) pandemic boosted online sales. New initiatives are springing up to take advantage, including the introduction of an online marketplace called Dú at ‘Juan Santamaría’ airport in San José. The app, which launched on 22 February, allows passengers to place their order while queuing at check-in before collecting their items from pick-up zones or retailers.

Other new e-commerce platforms include Mawi, which allows workers in the informal economy to offer services such as house cleaning and carpentry; and Tenndo, which provides a platform for small and medium-size enterprise (SME) owners to maintain their own online shops.

Also indicative of this trend, on 25 February Amazon Web Services (AWS), an Amazon subsidiary, opened an office in Costa Rica, which aims to support the development of cloud computing. AWS will “invest in the local market by hiring highly trained engineers, network specialists, account managers, and other roles”, said the company in a statement, citing “growing customer demand, the broad pool of talent here, and the investment we are making to support cloud adoption in the country”.

The state-run Banco Nacional de Costa Rica (BNCR), the country’s largest commercial bank, has also moved to support e-commerce, announcing the suspension of monthly charges for the use of point-of-sale (POS) terminals on 27 January. The BNCR also says that it will work to promote the use of alternative payment systems, which are cheaper than traditional terminals, as part of efforts to support SMEs during the pandemic.

Improvement to internet infrastructure is needed, but the signs are encouraging. The length of fibre-optic cables in Costa Rica increased 146% from June 2019 to June 2020, according to a Sutel report published in February. The number of fibre-optic internet subscriptions has also increased 63% in that time, said Sutel. Federico Chacón, president of Sutel’s council, said Costa Rica needs to ensure that rural areas enjoy the same level of connectivity as urban areas. To do so Sutel has installed connections to 513 public squares throughout the country which now have free WiFi networks. “This means fibre optic internet services are also available in these communities”, Chacón said.

Work is also going on at a regional level in the shape of a new programme called ‘SMEs Online’ launched by the Central American integration system (Sica) in February. Business owners throughout the region stand to benefit from the scheme, which is supported by the US State Department and offers technical assistance to companies that want to develop e-commerce capabilities. The US$500,000 fund will provide grants worth a maximum US$3,000 to eligible firms. This could help more firms make use of the internet, and therefore boost Costa Rica’s Unctad index score for secure internet servers, which is “a proxy for online shops in the country,” according to the report.

The other key area for improvement is the reliability of the postal service, which is calculated using the coverage of home delivery service, delivery times, and how much of the population lives within a 20-minute walk or public transport journey from a post office. As a result, this score relies heavily on the development of infrastructure such as roads, which is a priority throughout Central America.