Is Doing Business in Latin America Getting Easier or Harder?

As always with Latin America, we do not think that there is one single answer as the region is not one homogenous unit but a myriad of different markets and cultures.

The Doing Business Project, launched by the World Bank in 2002, publishes an update each year with objective measures of business regulations and their enforcement across 183 economies, including all of the LatAm markets. It offers measurable benchmarks for reform, and serves as a resource for everyone interested in the business climate of each country.

The recently published Doing Business in 2011 Report has significant detail on all of the markets measured, and also gives good examples of reforms achieved. One example quoted that demonstrates the effect of red tape is for a business in Kenya that wished to export to the UK:

Consider the story of Bedi Limited, a garment producer in Nakuru, Kenya. After spending 18 months pursuing a trial order for school items from Tesco, one of the largest retail chains in the United Kingdom, Bedi lost out on the chance to become part of its global supply chain. Bedi had everything well planned to meet a delivery date set for July. But the goods were delayed at the port. When they arrived in the United Kingdom in August, it was too late. The back-to-school promotion was over. Changes to regulations and procedures can help improve the overall trade logistics environment, enabling companies like Bedi to capture such growth opportunities.

In terms of regional performance, Latin America & the Caribbean had the lowest percentage of economies in which at least one reform  was made that make it easier to do business (47% vs. 84% of economies in the Eastern Europe & Central Asia area). Many of the reforms introduced have involved simplified online procedures.

The following table gives the respective 2011 and 2010 ranks for ease of doing business for selected countries:

Country DB2011 Rank DB2010 Rank
US 5 5
Mexico 35 41
Peru 36 46
Colombia 39 38
Chile 43 53
Panama 72 62
El Salvador 86 80
Guatemala 101 100
Paraguay 106 105
Argentina 115 113
Nicaragua 117 119
Uruguay 124 122
Costa Rica 125 121
Brazil 127 124
Ecuador 130 127
Honduras 131 128
Bolivia 149 148
Venezuela 172 170

The ranks are relative to the 183 markets measured, so a drop in the rankings does not necessarily mean that business has become more difficult but rather that other countries have reformed more. In fact over the last 5 years, only two LatAm markets have in fact become more difficult in which to do business: Argentina and Venezuela; unfortunately these were also the lowest ranked two countries globally in which doing business has become harder.

Over the same 5 year period, several LatAm economies have made significant reforms to make doing business easier: Colombia, Peru and Mexico. Chile, which is now ranked #4 in LatAm for ease of doing business, made few reforms over the period, but the Chilean President, Sebastian Pinera, has made it clear that it his government’s intention to be more business friendly. Brazil, which has potentially the most to gain from reform, has made some progress, but it needs to do more and faster if it is to make real progress.

In terms of ease of importing goods, the averages for the region are as follows:

Documents required to import: 7.5

Time to import: 22 days

Cost to import (US$ per container): $1,441 (excluding any tariffs or duties)

These figures of course mask wide variances within the area. In Venezuela the report estimates that a typical imported container will take 71 days and cost US$2,868, as opposed to 9 days and US$915 in Panama.

In terms of ease of exporting goods, the averages for the region are as follows:

Documents required to export: 7.1

Time to export: 19 days

Cost to export (US$ per container): $1,310

Again, looking at the same countries as an example, in Venezuela it takes 49 days to export a typical container and costs US$2,590, whereas in Panama it takes 9 days and costs US$765.

The protection for investors shows some of the highest variance in the region: Colombia is ranked #6 globally, but neighboring Venezuela is a very poor 179, perhaps not surprising given the arbitrary expropriations made by the Venezuelan President, Hugo Chavez.

Registering property in the region is generally complex, taking 7 procedures and 69 days on average; often it is because visits to different agencies and in Brazil there are 14 separate procedures required. Brazil could also benefit from tax reform; at present the project calculates that a typical entrepreneur in Brazil takes 2,600 hours each year to process the tax payments.

Our own experience with trade in the region typically correlates with the information provided by the Doing Business Project, and certainly it is generally far easier doing business in countries such as Mexico, Colombia, Peru and Chile as opposed to Venezuela in particular, but as we have noted it is Brazil that has the most potential to gain from fresh initiatives and cutting red tape. With elections due in a number of countries we hope that new administrations will take bolder and wider reforms and push LatAm forward faster.


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