Latin America cutting red tape -- slowly
September 11, 2008
If you are thinking of starting a business in Latin America, arm yourself with patience: It takes 20 times longer to open a company in many countries in the region than in the United States, Singapore or New Zealand.
According to a new report by the World Bank's International Finance Corp., several Latin American countries continue to be among the world champions of bureaucracy, while Eastern European, Asian and African countries are moving much faster to reduce government red tape, making it easier for its people to start new businesses.
The report, Doing Business 2009, is the sixth such annual report conducted by the IFC, and measures several areas of each country's regulations affecting current or potential businesses. While Colombia, the Dominican Republic and Uruguay made some progress in cutting red tape last year, most other countries in the region fell behind the rest of the world in 2007, the report says.
Among the study's findings:
• It takes 694 days to open a new business -- even if it's a mom-and-pop garage shop -- in Suriname, 195 days in Haiti, 152 days in Brazil and 141 days in Venezuela. By comparison, it takes one day to open a new business in New Zealand, two in Australia, four in Belgium or Singapore, and six in the United States.
Part of the reason for such delays in Latin America is the number of bureaucratic procedures required to start a business. You have to go through 18 bureaucratic steps to start a business in Brazil, 16 steps in Venezuela and 15 in Argentina, compared with six procedures in the United States, and one in Canada or New Zealand.
• If you want to build your factory or offices, you need 34 building permits in El Salvador, 28 in Argentina and 12 in Mexico. Comparatively, you only need six permits in Denmark, 15 in Burkina Faso and 19 in the United States.
• When it comes to making it difficult for employers to fire non-performing workers -- most often driving companies to freeze hirings -- Venezuela and Bolivia are the world champions: their laws simply don't allow it.
Business owners in Ecuador have to pay the equivalent of 135 weeks to fire a bad employee, in Argentina 95 weeks, in Mexico 52 weeks, and in Brazil 37 weeks. Comparatively, employers in the United States and Denmark can fire a non-performing employee without paying anything.
• If you want to export goods, you need to fill out nine documents in Argentina and Paraguay, eight in Venezuela and seven in Peru. Comparatively, you have to fill out two documents in France, and four in the United States.
Ranking the overall ease of doing business in the 181 countries included in the study, the best countries in Latin America are Chile, ranked 40th; Antigua and Barbuda, 42nd; Colombia, 53rd; Mexico, 56th and Peru 62nd. Except for Colombia, all top performers in the region did worse than last year.
Why are most Latin American countries falling behind in the World Bank's ranking of countries with the most business-friendly regulatory environments, I asked Sylvia Solf, one of the report's authors. It's not so much that Latin American countries are failing to cut red tape, she said, but that China and other Asian, Eastern European and African countries are doing it much faster.
''Perhaps the perceived pressure of competition is not as high in Latin America as in other regions,'' Solf said. ``In other regions, you have had a snowball effect. In Latin America, with the exception of Central America, this has not happened.''
My opinion: I agree. Many countries in the region suffer from peripheral blindness: they spend too much energy looking into their past and present nation-building projects, instead of looking into what they can learn from other countries around the world that have succeeded in encouraging investments, creating jobs and reducing poverty.
So it shouldn't come as a surprise that nearly half of Latin American adults work in the informal economy, without paying taxes, and without access to bank loans that would allow their small businesses to grow. When governments make it too difficult for people to conduct their business legally, entrepreneurs simply do it on the side, corruption grows, and progress is much slower.