OECD, concerned about little competition in the Peruvian market

In its first economic study on Peru, the Organization for Economic Cooperation and Development (OECD) highlighted the macroeconomic strengths of our country; However, he also exposed the shortcomings we have and what challenges the State must face if it wishes to belong to said group.

Thus, among its main findings, the OECD indicated that, although Peru has a prosperous private sector, the lack of competition resulting from the predominance of a small number of large business groups causes concern.

“Many markets in Peru are dominated by a few large business groups, and this translates into high concentration and a low perception of competition,” the study warns.

According to the international organization’s analysis, concentration is especially high in sectors that manufacture basic consumer products, such as dairy products, beverages and cooking oil, or provide essential services, such as telecommunications.

In this way, it is observed that these products face limited international competition and have few national substitutes.

Furthermore, it is evident that many companies with large market shares in individual segments, such as pharmacies, retail distribution chains and banks, are part of a conglomerate.

“High concentration limits the number of competitors in a market and, in this way, gives companies market power that can translate into higher prices and less innovation in product quality and differentiation. This has negative effects on the purchasing power and well-being of consumers,” she maintains.

For Mathias Cormann, secretary general of the OECD, the low competition in the Peruvian market is one of the reasons why there is lower productivity.

And, although the antitrust law was introduced in 2021, market concentration occurred in years prior to the introduction of this regime.

As an example, the OECD refers to the merger of the two largest retail pharmaceutical groups – which have a market share of more than 80% – which occurred just two years after Indecopi sanctioned the concertation of prices by part of said companies.

On the contrary, he highlighted that sectors such as construction, food and accommodation, like commerce, present little concentration, which reflects the presence of many competitors in these areas.

Competition policy

Faced with this problem, the economic forum—to which Peru aspires to join—suggests implementing an effective competition policy that enforces the rules related to cartels and abuse of dominant position, and that promotes competition.

Regarding Indecopi, they recommended strengthening the legal framework that governs the appointments of senior officials in order to safeguard the institution from the risk of political interference, “given the important economic interests that are at stake in its decisions.”

Economy down

Regarding the performance of the Peruvian economy, the OECD expects growth of 1.1% for 2023 and 2.7% for next year. Previously, the projection was 1.7% and 2.9%, respectively.

This adjustment is due to the fact that political uncertainty, extreme weather events and high interest and inflation rates have been limiting private consumption and investment.

The economic organization recalled that since 2016, Peru has been experiencing a political crisis that has caused during that period there to be six presidents and frequent changes to be made in Congress and ministries. These events, in the OECD’s position, have led to institutional weakness that could end up paralyzing the structural reforms necessary to promote economic growth and correct deeply rooted social inequalities.

Keys

Problem. Peru has one of the highest levels of informality in Latin America, according to the OECD.

Consequence. Informality is considered one of the main causes that perpetuate inequality and poverty.

Reactions

Alex Contreras, Minister of Economy and Finance

“A country that wants to access the OECD has to generate mechanisms that increase revenue, make reforms in terms of fiscal stabilization and competition.”

Mathias Cormann, Secretary General of the OECD

“Further actions are needed to improve or detect cartels and abuse of market power to apply competition laws in the Peruvian market in general.”