Latin America, more communist than China?
This is a news item that should be sending alarm bells throughout Latin America: a new World Bank report says that Communist-ruled China is much more capitalist-friendly than Brazil, Argentina, Venezuela and several other countries in the region.
At a time when Latin America’s economy has stopped growing and the region badly needs to attract investments, the massive World Bank report entitled “Doing Business 2016” shows that most South American governments place more obstacles to starting, operating or closing a business than China, or fellow communist-ruled Vietnam.
The report measures 189 countries according to the ease of doing business in each of them, from best to worse. It ranks China in 84th place and Vietnam in 90th place, while Brazil ranks 116, Argentina 121, Nicaragua 125, Bolivia 157, and Venezuela 186.
Some of the report’s examples are chilling. When it comes to the legal steps necessary to open a new business, for instance, it takes one single legal procedure to start a business in Hong Kong or New Zealand, three in Finland and six in the United States, while it takes 11 legal procedures in mainland China, 14 in Argentina, 15 in Bolivia and 17 in Venezuela.
Measured in time, it takes one hour to complete the forms needed to open a new business in New Zealand, one day in Hong Kong, six days in the United States, 31 days in mainland China, 35 days in Paraguay, 50 days in Bolivia, 50 days in Ecuador, 83 days in Brazil and — this is no typo — 144 days in Venezuela.
It’s no coincidence that several Latin American countries are among the world champions of corruption: the more legal procedures you need to start or to conduct a business , the more inspectors you need to bribe, and the more public officials you need to pay off in order to “expedite” the paperwork.
And it’s no coincidence that many Latin American countries have huge underground economies: the more difficult it is to legally start a new business, the more you need to hire lawyers and accountants. That’s why millions of people decide to operate in the underground — or informal — economy, which in many countries accounts for nearly 50 percent of the total economy.
Formalization has many benefits, the World Bank report says. Formally registered companies tend to do better, while their employees benefit from social security and other legal protections, and governments can collect more taxes, the report says.
Luckily, there are notable exceptions in Latin America: in Chile, Uruguay, Colombia, Peru and Mexico, the number of legal procedures to start a new business has been cut to fewer than eight in recent years.
But consider another example listed in the report: the average number of days it takes you to resolve a conflict in court should you have a dispute with your business partners.
In Hong Kong, enforcing a contract takes an average of 360 days, in the rest of China 453 days, in Chile 480 days, in Argentina 590 days, in Bolivia and Paraguay 591 days, in Venezuela, 610 days, Uruguay 725, and in Brazil 731 days. That’s great for lawyers, bad for virtually everybody else.
When it comes to the difficulty to import or export goods, China wins again. In Hong Kong, filling out the document needed to import goods takes an average of one hour, while it takes an average of 66 hours in the rest of China, 72 hours in Peru and Uruguay, 96 hours in Bolivia,120 hours in Ecuador, 146 hours in Brazil, 336 hours in Argentina, and — this is no joke — 1,090 hours in Venezuela, the World Bank figures show.
My opinion: Latin America’s horrific red tape figures may not have mattered that much during the past decade, when South American countries were awash with money thanks to record world prices for their commodity exports. But those days are over.
Now, with Latin America’s overall economy showing zero growth, the region badly needs to get domestic and foreign investments. To do that, countries should dramatically reduce red tape — and be at least as business friendly as communist-ruled China.
Miami Herald | A ndres Oppenheimer