Doing Business 2009: Regulatory Reform and Best Practices in Latin America

Speakers:

• Sylvia Solf, Program Manager, Doing Business Project, The World Bank-IFC
• Juan Pablo Capello, Shareholder, Greenberg Traurig, LLP
• Luis Manuel Kolster, Assistant General Counsel and Director of Public Policy, General Motors Latin America, Africa and Middle East
• Liliana Maria Rojas, Advisor to the Vice Minister of Entrepreneurial Development, Ministry of Commerce, Industry and Tourism of Colombia
• Christopher Sabatini, Senior Director of Policy, AS/COA; Editor-in-Chief, Americas Quarterly (Moderator)

Summary:

On February 20, 2009 the Americas Society and Council of the Americas hosted a public discussion on the World Bank’s Doing Business 2009 report, with a focus on regulatory reform and best practices in Latin America. The Doing Business project provides quantitative measures for understanding and improving the regulatory environment for business in 181 countries, focusing on 10 indicators measuring government regulation and bureaucracy—from starting a business to registering property to trading across borders. The roundtable centered on how Latin American countries ranked in the report, as well as its usefulness and limitations.

Regulatory Progress in Latin America

According to the Doing Business 2009, Chile, Colombia, Mexico, and the Dominican Republic lead the Latin American region in terms of ease of doing business. On the other hand, Brazil and Venezuela rank near the bottom on the global scale—at 125 and 174, respectively—and have a great distance to go in improving the regulatory environment for business. In opening remarks, Sylvia Solf of the Doing Business project emphasized how more governments are paying closer attention to regulation since the project began, with 50 percent of Latin American countries implementing some type of business regulation reform last year.

Most reforms have focused on the low hanging fruit: simplifying bureaucracy. Yet, it still takes an average of two years to enforce a contract in Latin America and most countries have not begun to address the more complicated reform of their judicial systems. Solf noted that Mexico and Colombia have stood out in the region for implementing more costly legal reforms. General Motors’ Luis Kolster noted that Asian countries constantly outperform Latin American ones in this area, leaving a huge gap in competitiveness.

The Doing Business project also named Colombia a “top reformer” in the region, recognizing a commitment to improving the business environment in the country. Liliana Maria Rojas of Colombia’s Commerce Ministry drew attention to the fact that the country has focused on removing the obstacles for starting a business, specifically in the areas of construction permits, paying taxes, and closing a business—all of which are crucial tools for small and medium enterprises that serve as job creators in the economy.

Doing Business offers a useful exercise…

There was a general consensus among speakers and attendees that the Doing Business report stands as a good reference with much relevance, especially to small and medium enterprises looking to set up shop or invest abroad. However, GreenbergTraurig’s Juan Pablo Cappello argued that, although the indicators measured in the report are crucial to these smaller companies, they carry little weight in the analyses of larger, multinational companies. Kolster agreed, saying that larger companies will generally analyze competitiveness across markets, meaning data on size of market and cost structure is more important.

Solf defended the Doing Business Project, which, in its sixth year, is still in its infancy. An indicator for infrastructure will be added next year, given its relevance for small and large companies alike, and the World Bank responds to feedback and the needs of businesses and to improve the data over time.

… but the ratings do not produce a magic investment number.

Discussants expressed some concern over the lack of statistical correlation between the Doing Business indicators and broader economic growth. Cappello also argued that while the report as a whole covers important data and represents a valuable project, the overall country rankings, which average the ratings in each of the ten indicators, represent a “hyperdistilling” of the results in such a way that the figure cannot be used to evaluate investments in the various markets.

On the other hand, Rojas argued that these rankings can serve as an important tool for governments, which can use the report for a benchmarking exercise to direct their reform efforts, and then track their progress over time. Solf added that some countries have been inspired by the reforms of others. For example, the government of El Salvador convened a summit of Central American countries to discuss how they could learn from each other and promote progress as a sub-region. AS/COA’s Christopher Sabatini concluded that the data in the report promotes debate and accountability, though the overall rankings, while useful for consideration, do not represent a catchall figure for growth.

Still, participants suggested that, particularly in the context of the global financial crisis, reforms in the areas covered by Doing Business could be the most critical for regional growth. Unlike free trade agreements, which benefit multinational corporations, the indicators measured by the project benefit small businesses—the motors of job creation—leading to a stronger middle class and broader economic growth.