Latin America: Where is it easier and more difficult to do business?

Pedro Bernal August 10, 2018

249 4 minutes read

An index of the World Bank evaluates aspects such as how long it may take you to open a business, revealing that countries are more friendly for entrepreneurs

The "Index of ease of doing business" of the World Bank, which taking IGNORE INTO account aspects such as the number of procedures, the cost of these and the amount of time necessary to legalize the opening of a business, organizes the countries in order from greater to lesser ease when it comes to creating and participating in companies. Worldwide, the reference in terms of "ease of doing business" is New Zealand. In this country, you only need to carry out a procedure with a duration of 0.5 days to have a business registered and ready to operate.

Leer en español: ¿En cuáles países latinoamericanos es más fácil hacer negocios y en cuáles no?

The index works by comparing each country with what the organization considers "the best practice": the least amount of paperwork, in the shortest possible time and with the lowest cost. Therefore, the countries are organized because they resemble New Zealand in terms of the amount of paperwork and the time necessary to comply with them. They are also compared to Slovenia in terms of the cost to complete the procedures because in this country they cost zero dollars.

This determines the general ranking of the countries in the index. However, there are many other categories that are researched to complement the position of each country. The facility to export, the state capacity to enforce contracts and access to the electricity grid also count when analyzing the ease with which business is done in each country.

Mexico leads a lagging Latin America

In general, Latin America does not figure very well in the World Bank index. Mexico, the country that holds the highest position in the region, enters the list in the 49th position. In this sense, it is surpassed by countries like Kosovo in 40th place and Rwanda in 41. This shows that business in Latin America still operates under a strict regulatory framework, far from what the World Bank considers "the best practice".

Despite occupying 49th place worldwide, Mexico is in sixth place in ease of access to credit, an important item. It is followed by Chile in 55th position, the only Latin American country in the high-income category, according to the Organization for Economic Cooperation and Development (OECD). Chile does not stand out in any of the categories, located between positions 44 and 90 in all the items of the index minus one. Chile ranks 15th in ease of access to building permits.

After Chile are Peru and Colombia, in positions 58 and 59 respectively. Colombia stands out, above all countries in the region, in the category of access to credit, ranking second in the world. For its part, Peru occupies intermediate positions in all categories. However, both are badly placed in the category that measures the ease with which a company can be opened, occupying posts 96 (Colombia) and 114 (Peru).

The situation also varies within the countries

The case of Colombia has been studied in greater depth. Together with Brazil and Mexico, it is among the only countries to which the World Bank has dedicated a subnational study, made to identify the specific conditions in the regions within the country. In the Colombian case, the cities of Manizales and Pereira were considered the most business-friendly because of their combination of increasing income and lax regulations.

On the Mexico side, the State of Mexico and Aguascalientes present the best regulatory conditions for doing business. The first presented a good performance when enforcing contracts, while the second demonstrated a great ease when registering properties before regulatory bodies. The study made to Brazil, although it dates from 2006, places Minas Gerais as the State in which it takes the least time to open a company: 19 days. Meanwhile, in the State of Sao Paulo, the regulations are so many that it can take up to 152 days to open a business.

Venezuela, last in the region

As with many indicators of the financial and economic landscape, Venezuela has the worst performance in the region, ranking 188th worldwide. Behind Venezuela are only two countries, both located in the Horn of Africa: Eritrea and Somalia. According to the World Bank analysis, opening a business in Caracas can take around 230 days and costs 3 times the average annual income of a person.

In addition to the poor performance of Venezuela in these indicators, the World Bank assigns to this country a serious prognosis, affirming that the changes that currently affect Venezuela are "making it more difficult to do business".