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:
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.
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.