65633 Regional Profile: Latin America © 2012 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org All rights reserved. 1 2 3 4 08 07 06 05 A copublication of The World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. 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ISBN: 978-0-8213-8833-4 E-ISBN: 978-0-8213-8834-1 DOI: 10.1596/978-0-8213-8833-4 ISSN: 1729-2638 Printed in the United States Doing Business 2012 LATIN AMERICA 3 CONTENTS Introduction ......................................................................................................................................................................4 The business environment..............................................................................................................................................5 Starting a business........................................................................................................................................................ 11 Dealing with construction permits ............................................................................................................................ 20 Getting electricity ......................................................................................................................................................... 27 Registering property .................................................................................................................................................... 32 Getting credit ................................................................................................................................................................ 39 Protecting investors ..................................................................................................................................................... 44 Paying taxes ................................................................................................................................................................... 51 Trading across borders ................................................................................................................................................ 60 Enforcing contracts....................................................................................................................................................... 71 Resolving insolvency .................................................................................................................................................... 77 Data notes ...................................................................................................................................................................... 84 Resources on the Doing Business website ................................................................................................................ 88 Doing Business 2012 LATIN AMERICA 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is high income. The data in this report are current as of for a local entrepreneur to open and run a small to June 1, 2011 (except for the paying taxes indicators, medium-size business when complying with relevant which cover the period January–December 2010). regulations. It measures and tracks changes in The Doing Business methodology has limitations. Other regulations affecting 10 areas in the life cycle of a areas important to business—such as an economy’s business: starting a business, dealing with construction proximity to large markets, the quality of its permits, getting electricity, registering property, infrastructure services (other than those related to getting credit, protecting investors, paying taxes, trading across borders and getting electricity), the trading across borders, enforcing contracts and security of property from theft and looting, the resolving insolvency. transparency of government procurement, In a series of annual reports Doing Business presents macroeconomic conditions or the underlying strength quantitative indicators on business regulations and the of institutions—are not directly studied by Doing protection of property rights that can be compared Business. The indicators refer to a specific type of across 183 economies, from Afghanistan to Zimbabwe, business, generally a local limited liability company over time. The data set covers 46 economies in Sub- operating in the largest business city. Because Saharan Africa, 32 in Latin America and the Caribbean, standard assumptions are used in the data collection, 24 in East Asia and the Pacific, 24 in Eastern Europe comparisons and benchmarks are valid across and Central Asia, 18 in the Middle East and North economies. The data not only highlight the extent of Africa and 8 in South Asia, as well as 31 OECD high- obstacles to doing business; they also help identify the income economies. The indicators are used to analyze source of those obstacles, supporting policy makers in economic outcomes and identify what reforms have designing regulatory reform. worked, where and why. More information is available in the full report. Doing This regional profile presents the Doing Business Business 2012 presents the indicators, analyzes their indicators for Latin America. It also shows the regional relationship with economic outcomes and average, the best performance globally for each recommends regulatory reforms. The data, along with indicator and data for the following comparator information on ordering the Doing Business 2012 regions: Caribbean states, East Asia and the Pacific report, are available on the Doing Business website at (EAP), European Union (EU), South Asia (SA) and OECD http://www.doingbusiness.org. Doing Business 2012 LATIN AMERICA 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s The ranking on each topic is the simple average of regulatory environment for business, a good place to the percentile rankings on its component 1 start is to find out how it compares with the indicators (see the data notes for more details). regulatory environment in other economies. Doing The aggregate ranking on the ease of doing Business provides an aggregate ranking on the ease business benchmarks each economy’s of doing business based on indicator sets that performance on the indicators against that of all measure and benchmark regulations applying to other economies in the Doing Business sample domestic small to medium-size businesses through (figure 1.1). While this ranking tells much about their life cycle. Economies are ranked from 1 to 183 the business environment in an economy, it does by the ease of doing business index. For each not tell the whole story. The ranking on the ease of economy the index is calculated as the ranking on the doing business, and the underlying indicators, do simple average of its percentile rankings on each of not measure all aspects of the business the 10 topics included in the index in Doing Business environment that matter to firms and investors or 2012: starting a business, dealing with construction that affect the competitiveness of the economy. permits, getting electricity, registering property, Still, a high ranking does mean that the getting credit, protecting investors, paying taxes, government has created a regulatory environment trading across borders, enforcing contracts and conducive to operating a business. resolving insolvency. Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. 1 Except for the ease of getting credit, for which the percentile rankings on its component indicators are weighted, the depth of credit information index at 37.5% and the strength of legal rights index at 62.5%. Doing Business 2012 LATIN AMERICA 6 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy stands regional average (figure 1.2). Another perspective is in the aggregate ranking on the ease of doing business is provided by the regional average rankings on the topics useful. Also useful is to know how it ranks compared with included in the ease of doing business index (figure 1.3). other economies in the region and compared with the Figure 1.2 How economies in Latin America rank on the ease of doing business *The economy with the best performance globally is included as a benchmark. In some cases 2 or more economies share the top ranking on an indicator. Source: Doing Business database. Doing Business 2012 LATIN AMERICA 7 THE BUSINESS ENVIRONMENT Figure 1.3 How Latin America ranks on Doing Business topics Regional average ranking Source: Doing Business database. Doing Business 2012 LATIN AMERICA 8 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing The absolute values of the indicators tell another part business tells only part of the story, so do changes in of the story (table 1.1). Policy makers can learn much that ranking. Yearly movements in rankings can by comparing the indicators for their economy with provide some indication of changes in an economy’s those for the lowest- and highest-scoring economies regulatory environment for firms, but they are always in the region as well as those for the best performers relative. An economy’s ranking might change because globally. These comparisons may reveal unexpected of developments in other economies. An economy that strengths in an area of business regulation—such as a implemented business regulation reforms may fail to regulatory process that can be completed with a small rise in the rankings (or may even drop) if it is passed number of procedures in a few days and at a low cost. by others whose business regulation reforms had a more significant impact as measured by Doing Business. Table 1.1 Summary of Doing Business indicators for Latin America Lowest regional Best regional Best global Indicator Regional average performance performance performance Starting a Business 173 (Suriname) 27 (Chile) 113 1 (New Zealand) (rank) Procedures (number) 17 (Venezuela, RB) 5 (Peru)* 10 1 (Canada)* Time (days) 694 (Suriname) 7 (Chile)* 71 1 (New Zealand) Cost (% of income per 115.0 (Suriname) 5.1 (Chile) 36.3 0 (Denmark)* capita) Paid-in Min. Capital (% 22.3 (Guatemala) (11 Economies*) 3.0 (82 Economies*) of income per capita) Dealing with 1 (Hong Kong SAR, Construction Permits 169 (Argentina) 9 (Belize) 97 China) (rank) Procedures (number) 33 (El Salvador) 8 (Colombia)* 16 5 (Denmark) Time (days) 469 (Brazil) 46 (Colombia) 206 26 (Singapore)* Cost (% of income per 541.7 (Guatemala) 17.5 (Guyana) 177.0 1.1 (Qatar) capita) Getting Electricity 155 (Venezuela, RB) 7 (Uruguay) 82 1 (Iceland) (rank) Procedures (number) 8 (Bolivia)* 4 (Uruguay)* 6 3 (Germany)* Time (days) 165 (Colombia) 31 (Chile) 71 17 (Germany) Cost (% of income per 1,653.8 (Nicaragua) 15.4 (Panama) 573.3 0 (Japan) capita) Doing Business 2012 LATIN AMERICA 9 Lowest regional Best regional Best global Indicator Regional average performance performance performance Registering Property 170 (Suriname) 22 (Peru) 96 3 (New Zealand) (rank) Procedures (number) 13 (Brazil) 4 (Peru)* 7 1 (Portugal)* Time (days) 197 (Suriname) 7 (Peru) 49 1 (Portugal) Cost (% of property 13.8 (Suriname) 0.9 (Guatemala) 4.3 0 (Slovak Republic) value) Getting Credit (rank) 182 (Venezuela, RB) 8 (Guatemala) 80 1 (United Kingdom)* Strength of legal rights 1 (Venezuela, RB)* 8 (Guatemala)* 5 10 (New Zealand)* index (0-10) Depth of credit 0 (Venezuela, RB) (11 Economies*) 5 6 (Japan)* information index (0-6) Public registry coverage 10.5 (Nicaragua) 36.1 (Brazil) 14.3 86.2 (Portugal) (% of adults) Private bureau coverage 8.9 (Guatemala) 100.0 (Uruguay)* 46.0 100 (New Zealand)* (% of adults) Protecting Investors 181 (Suriname) 5 (Colombia) 106 1 (New Zealand) (rank) Extent of disclosure 0 (Honduras) 8 (Chile)* 4 10 (France)* index (0-10) Extent of director 0 (Suriname)* 8 (Colombia) 4 9 (Singapore)* liability index (0-10) Ease of shareholder 2 (Venezuela, RB)* 9 (Colombia)* 6 10 (New Zealand)* suits index (0-10) Strength of investor 2.0 (Suriname) 8.3 (Colombia) 4.7 9.7 (New Zealand) protection index (0-10) Paying Taxes (rank) 183 (Venezuela, RB) 34 (Suriname) 122 8 (Canada) Payments (number per 70 (Venezuela, RB) 6 (Mexico) 30 4 (Norway) year) Time (hours per year) 2600 (Brazil) 147 (Belize) 497 59 (Luxembourg) Trading Across 166 (Venezuela, RB) 11 (Panama) 97 1 (Singapore) Borders (rank) Documents to export 10 (Guatemala) 3 (Panama) 7 2 (France) (number) 5 (Hong Kong SAR, Time to export (days) 49 (Venezuela, RB) 9 (Panama) 19 China)* Cost to export (US$ per 2590 (Venezuela, RB) 615 (Panama) 1323 450 (Malaysia) container) Doing Business 2012 LATIN AMERICA 10 Lowest regional Best regional Best global Indicator Regional average performance performance performance Documents to import 10 (Paraguay) 4 (Mexico)* 7 2 (France) (number) Time to import (days) 71 (Venezuela, RB) 9 (Panama) 22 4 (Singapore) Cost to import (US$ per 2868 (Venezuela, RB) 745 (Guyana) 1495 435 (Malaysia) container) Enforcing Contracts 178 (Suriname) 45 (Argentina) 108 1 (Luxembourg) (rank) Time (days) 1715 (Suriname) 409 (Nicaragua) 765 150 (Singapore) Cost (% of claim) 50.0 (Panama) 16.5 (Argentina)* 30.1 0.1 (Bhutan) Procedures (number) 51 (Belize) 30 (Venezuela, RB) 38 21 (Ireland)* Resolving Insolvency 161 (Venezuela, RB) 12 (Colombia) 97 1 (Japan) (rank) Time (years) 5.3 (Ecuador) 1.0 (Belize) 3.1 0.4 (Ireland) Cost (% of estate) 38 (Venezuela, RB) 1 (Colombia) 16 1 (Singapore)* Recovery rate (cents on 6.2 (Venezuela, RB) 82.8 (Colombia) 31.8 92.7 (Japan) the dollar) Note: The methodology for the paying taxes indicators changed in Doing Business 2012; see the data notes for details. For these indicators, the best performer globally is the economy that has implemented the most efficient practices in its tax system and is not necessarily the one with the highest ranking. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2012 LATIN AMERICA 11 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for INDICATORS MEASURE business owners and employees. Legal entities can outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures that are officially required or commonly received done in practice by an entrepreneur to start up and No prior contact with officials formally operate an industrial or commercial business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must Official costs only, no bribes deposit before registration (or within 3 months). The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost Paid-in minimum capital (% of income and paid-in minimum capital requirement. per capita) To make the data comparable across economies, Deposited in a bank or with a notary before Doing Business uses several assumptions about the registration (or within 3 months) business and the procedures. It assumes that all information is readily available to the entrepreneur • Conducts general commercial or industrial and that there has been no prior contact with activities. officials. It also assumes that all government and • Has a start-up capital of 10 times income per nongovernment entities involved in the process capita. function without corruption. And it assumes that the business: • Has a turnover of at least 100 times income per capita. • Is a limited liability company, located in the largest business city. • Does not qualify for any special benefits. • Has between 10 and 50 employees. • Does not own real estate. • Is 100% domestically owned. Doing Business 2012 LATIN AMERICA 12 STARTING A BUSINESS Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in Latin suggest an answer (figure 2.1). The average ranking of America to start a business? The global rankings of the region and comparator regions provide a useful these economies on the ease of starting a business benchmark. Figure 2.1 How economies in Latin America rank on the ease of starting a business Source: Doing Business database. The indicators underlying the rankings may be more and the paid-in minimum capital requirement (figure revealing. Data collected by Doing Business show what 2.2). Comparing these indicators across the region and it takes to start a business in each economy in the with averages both for the region and for comparator region: the number of procedures, the time, the cost regions can provide useful insights. Doing Business 2012 LATIN AMERICA 13 STARTING A BUSINESS Figure 2.2 What it takes to start a business in economies in Latin America Procedures (number) Doing Business 2012 LATIN AMERICA 14 STARTING A BUSINESS Time (days) Doing Business 2012 LATIN AMERICA 15 STARTING A BUSINESS Cost (% of income per capita) Doing Business 2012 LATIN AMERICA 16 STARTING A BUSINESS Paid-in minimum capital (% of income per capita) Source: Doing Business database. Doing Business 2012 LATIN AMERICA 17 STARTING A BUSINESS What are the changes over time? Economies around the world have taken steps making stages—and often as part of a larger regulatory reform it easier to start a business—streamlining procedures program. Among the benefits have been greater firm by setting up a one-stop shop, making procedures satisfaction and savings and more registered simpler or faster by introducing technology, and businesses, financial resources and job opportunities. reducing or eliminating minimum capital requirements. What business registration reforms has Doing Business Many have undertaken business registration reforms in recorded in Latin America (table 2.1)? Table 2.1 How have economies in Latin America made starting a business easier—or not? By Doing Business report year DB Year Economy Reform Chile made business start-up easier by starting to provide an immediate temporary operating license to new companies, eliminating the requirement for an inspection of premises by DB2012 Chile the tax authority before new companies can begin operations and allowing free online publication of the notice of a company’s creation. Colombia reduced the costs associated with starting a DB2012 Colombia business, by no longer requiring upfront payment of the commercial license fee. Guyana eased the process of starting a business by reducing DB2012 Guyana the time needed for registering a new company and for obtaining a tax identification number. Panama extended the operating hours of the public registry, DB2012 Panama reducing the time required to register a new company. Peru made starting a business easier by eliminating the DB2012 Peru requirement for micro and small enterprises to deposit start- up capital in a bank before registration. Uruguay made starting a business easier by establishing a DB2012 Uruguay one-stop shop for general commercial companies. Brazil eased business start-up by further enhancing the DB2011 Brazil electronic synchronization between federal and state tax authorities. Chile made business start-up easier by introducing an online DB2011 Chile system for registration and for filing the request for publication. Ecuador made starting a business easier by introducing an DB2011 Ecuador online registration system for social security. Doing Business 2012 LATIN AMERICA 18 DB Year Economy Reform Guyana eased business start-up by digitizing company DB2011 Guyana records, which speeded up the process of company name search and reservation. Mexico launched an online one-stop shop for initiating DB2011 Mexico business registration. Panama eased business start-up by increasing efficiency at DB2011 Panama the registrar. Peru eased business start-up by simplifying the requirements DB2011 Peru for operating licenses and creating an online one-stop shop for business registration. República Bolivariana de Venezuela made starting a business DB2011 Venezuela, RB more difficult by introducing a new procedure for registering a company. Business start-up was eased with an expedited publication DB2010 Argentina process. The process of starting a business was eased by removing the DB2010 Brazil requirement to obtain a fire brigade license and inspection before obtaining an operational license from a municipality. Business start-up was made easier by creating a public- private health provider that enables faster affiliation of DB2010 Colombia employees and through a tool that allows online pre- enrollment with the social security office. Business start-up was eased by applying a flat registration fee DB2010 Guyana for all companies, regardless of their capital amount, and removing the duty payable on incorporation. Business start-up was eased by creating a one-stop shop to make registration more efficient, improving the process of DB2010 Honduras registering for taxes, and eliminating the need for lawyer services to obtain a municipal license. Business start-up was eased by establishing an electronic platform for company registration, substantially reducing the DB2010 Mexico number of days for registration, and eliminating the requirement to register with the statistical office. Business start-up was simplified by allowing submission of DB2010 Peru electronic payroll books online at no cost and making company forms available online. The time and cost to start a business were reduced by simplifying registration formalities, including speeding up DB2009 Colombia processes at the registry and eliminating the need to obtain a certificate of compliance with zoning regulations. Tax registration records and company books were digitized, DB2009 Costa Rica reducing the time required to start a business. Doing Business 2012 LATIN AMERICA 19 DB Year Economy Reform A new commercial code was implemented that simplified business start-up by reducing the minimum capital DB2009 El Salvador requirement, simplifying the legalization of accounting books, and publication requirements. An online system for company creation was introduced, DB2009 Panama greatly speeding business start-up. The minimum capital requirement was eliminated in July DB2009 Uruguay 2007, making it easier to start a business. With the full implementation of the one stop shop, DB2008 Guatemala procedures and time for new company registration were reduced. The municipal licensing procedures were simplified, reducing DB2008 Honduras the time start a business. A one-stop-shop linking multiple agencies was launched. The DB2008 Paraguay number of procedures to start a business was more than halved, and the time was reduced. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 LATIN AMERICA 20 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone is better off. Completing all required notifications and receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy’s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it can be used as collateral or transferred to another Time required to complete each procedure entity. (calendar days) The ranking on the ease of dealing with Does not include time spent gathering construction permits is the simple average of the information percentile rankings on its component indicators: Each procedure starts on a separate day procedures, time and cost. Procedure completed once final document is To make the data comparable across economies, received Doing Business uses several assumptions about the business and the warehouse, including the utility No prior contact with officials connections. Cost required to complete each procedure (% The business: of income per capita) • Is a limited liability company operating in Official costs only, no bribes the construction business and located in • Will be connected to water, sewerage the largest business city. (sewage system, septic tank or their • Is domestically owned and operated. equivalent) and a fixed telephone line. The connection to each utility network will be 10 • Has 60 builders and other employees. meters (32 feet, 10 inches) long. The warehouse: • Will be used for general storage, such as of • Is a new construction (there was no books or stationery (not for goods requiring previous construction on the land). special conditions). • Has complete architectural and technical • Will take 30 weeks to construct (excluding all plans prepared by a licensed architect. delays due to administrative and regulatory requirements). Doing Business 2012 LATIN AMERICA 21 DEALING WITH CONSTRUCTION PERMITS Where do the region’s economies stand today? How easy it is for entrepreneurs in economies in Latin with construction permits suggest an answer (figure America to legally build a warehouse? The global 3.1). The average ranking of the region and rankings of these economies on the ease of dealing comparator regions provide a useful benchmark. Figure 3.1 How economies in Latin America rank on the ease of dealing with construction permits Source: Doing Business database. The indicators underlying the rankings may be more of procedures, the time and the cost (figure 3.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to comply with formalities to build a averages both for the region and for comparator warehouse in each economy in the region: the number regions can provide useful insights. Doing Business 2012 LATIN AMERICA 22 DEALING WITH CONSTRUCTION PERMITS Figure 3.2 What it takes to comply with formalities to build a warehouse in economies in Latin America Procedures (number) Doing Business 2012 LATIN AMERICA 23 DEALING WITH CONSTRUCTION PERMITS Time (days) Doing Business 2012 LATIN AMERICA 24 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) * Indicates a “no practice� mark. See the data notes for details. Source: Doing Business database. Doing Business 2012 LATIN AMERICA 25 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Latin America (table 3.1)? Construction is one of them. In an effort to ensure Table 3.1 How have economies in Latin America made dealing with construction permits easier—or not? By Doing Business report year DB Year Economy Reform Mexico made dealing with construction permits faster by DB2012 Mexico consolidating internal administrative procedures. Paraguay made dealing with construction permits easier by DB2012 Paraguay implementing a risk-based approval system and a single window for obtaining construction permits. Colombia eased construction permitting by improving the DB2011 Colombia electronic verification of prebuilding certificates. Mexico improved construction permitting by merging and DB2011 Mexico streamlining procedures related to zoning and utilities. Paraguay made dealing with construction permits easier by DB2011 Paraguay creating a new administrative structure and a better tracking system in the municipality of Asunción. Peru streamlined construction permitting by implementing DB2011 Peru administrative reforms. The government eased the construction permit process with a new construction decree that categorizes building projects DB2010 Colombia based on risk and allows electronic verification for certain documents. The construction permit process was eased with a new land management plan that simplified approvals based on risk DB2010 Guatemala assessments, while mixed zoning regimes made the approval process much faster. Doing Business 2012 LATIN AMERICA 26 DB Year Economy Reform The construction permit process was eased through various DB2010 Honduras administrative reforms that shortened the process by 19 days. The construction permit process was eased by eliminating DB2010 Panama and simplifying some procedures. A silence-is-consent principle for building permits is now DB2009 Colombia applied, reducing the total time for dealing with construction permits. A new unified application form was introduced. The decision processes for construction were expedited, DB2008 Guatemala reducing the time. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 LATIN AMERICA 27 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several Each procedure starts on a separate day assumptions are used. Does not include time spent gathering The warehouse: information • Is located in the economy’s largest Reflects the time spent in practice, with little business city, in an area where other follow-up and no prior contact with officials warehouses are located. Cost required to complete each procedure (% • Is not in a special economic zone where of income per capita) the connection would be eligible for subsidization or faster service. Official costs only, no bribes • Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land. • Is 150 meters long. • Is a new construction being connected to • Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either • Has 2 stories, both above ground, with a overhead or underground, whichever is more total surface of about 1,300.6 square common in the economy and in the area meters (14,000 square feet), and is built on where the warehouse is located. The length a plot of 929 square meters (10,000 square of any connection in the customer’s private feet). domain is negligible. The electricity connection: • Involves installing one electricity meter. The monthly electricity consumption will be 0.07 • Is a 3-phase, 4-wire Y, 140-kilovolt-ampere gigawatt-hour (GWh). The internal electrical (kVA) (subscribed capacity) connection. wiring has been completed. Doing Business 2012 LATIN AMERICA 28 GETTING ELECTRICITY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in Latin getting electricity suggest an answer (figure 4.1). The America to connect a warehouse to electricity? The average ranking of the region and comparator regions global rankings of these economies on the ease of provide a useful benchmark. Figure 4.1 How economies in Latin America rank on the ease of getting electricity Source: Doing Business database. The indicators underlying the rankings may be more time and the cost (figure 4.2). Comparing these revealing. Data collected by Doing Business show what indicators across the region and with averages both for it takes to get a new electricity connection in each the region and for comparator regions can provide economy in the region: the number of procedures, the useful insights. Doing Business 2012 LATIN AMERICA 29 GETTING ELECTRICITY Figure 4.2 What it takes to get an electricity connection in economies in Latin America Procedures (number) Doing Business 2012 LATIN AMERICA 30 GETTING ELECTRICITY Time (days) Doing Business 2012 LATIN AMERICA 31 GETTING ELECTRICITY Cost (% of income per capita) Source: Doing Business database. Doing Business 2012 LATIN AMERICA 32 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with property title to the buyer’s name. The transaction the municipality) is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or resell it. The ranking on the ease of registering Does not include time spent gathering property is the simple average of the percentile information rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is To make the data comparable across economies, received several assumptions about the parties to the transaction, the property and the procedures are No prior contact with officials used. Cost required to complete each procedure The parties (buyer and seller): (% of property value) • Are limited liability companies, 100% Official costs only, no bribes domestically and privately owned. No value added or capital gains taxes included • Are located in the periurban area of the economy’s largest business city. • Have 50 employees each, all of whom are nationals. • Has no mortgages attached and has been under the same ownership for the past 10 • Perform general commercial activities. years. The property (fully owned by the seller): • Consists of 557.4 square meters (6,000 square • Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000 square feet). The warehouse is in good • Is registered in the land registry or condition and complies with all safety cadastre, or both, and is free of title standards, building codes and legal disputes. requirements. The property will be transferred • Is located in a periurban commercial zone, in its entirety. and no rezoning is required. Doing Business 2012 LATIN AMERICA 33 REGISTERING PROPERTY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in Latin suggest an answer (figure 5.1). The average ranking of America to transfer property? The global rankings of the region and comparator regions provide a useful these economies on the ease of registering property benchmark. Figure 5.1 How economies in Latin America rank on the ease of registering property Source: Doing Business database. The indicators underlying the rankings may be more time and the cost (figure 5.2). Comparing these revealing. Data collected by Doing Business show what indicators across the region and with averages both for it takes to complete a property transfer in each the region and for comparator regions can provide economy in the region: the number of procedures, the useful insights. Doing Business 2012 LATIN AMERICA 34 REGISTERING PROPERTY Figure 5.2 What it takes to register property in economies in Latin America Procedures (number) Doing Business 2012 LATIN AMERICA 35 REGISTERING PROPERTY Time (days) Doing Business 2012 LATIN AMERICA 36 REGISTERING PROPERTY Cost (% of property value) * Indicates a “no practice� mark. See the data notes for details. Source: Doing Business database. Doing Business 2012 LATIN AMERICA 37 REGISTERING PROPERTY What are the changes over time? Economies worldwide have been making it easier for buyers to use or mortgage their property earlier. What entrepreneurs to register and transfer property—such property registration reforms has Doing Business as by computerizing land registries, introducing time recorded in Latin America (table 5.1)? limits for procedures and setting low fixed fees. Many have cut the time required substantially—enabling Table 5.1 How have economies in Latin America made registering property easier—or not? By Doing Business report year DB Year Economy Reform Argentina made transferring property more difficult by DB2012 Argentina adding a requirement that the notary obtain the tax agency’s reference value for property before notarizing the sale deed. Costa Rica made transferring property easier and quicker by DB2012 Costa Rica making property certificates available online through a single website. In Guyana transferring property became slower because of a DB2012 Guyana lack of personnel at the deed registry. Nicaragua made transferring property more efficient by DB2012 Nicaragua introducing a fast-track procedure for registration. Panama made it more expensive to transfer property by DB2011 Panama requiring that an amount equal to 3% of the property value be paid upon registration. Peru introduced fast-track procedures at the land registry, DB2011 Peru cutting by half the time needed to register property. In Uruguay the Municipality of Montevideo made registering DB2011 Uruguay property easier by eliminating the need to obtain a mandatory waiver for preemption rights. Registering property was made more difficult by requiring DB2010 Argentina declarations for all transactions over AR$300,000. Doing Business 2012 LATIN AMERICA 38 DB Year Economy Reform Property registration was made easier by making it possible DB2010 Colombia to obtain required certificates online and by making standard preliminary sale agreements available free of charge. Property registration was eased by centralizing more DB2010 Guatemala procedures at the cadastre, reorganizing operations, and making greater use of electronic services. Registering property has become easier with faster electronic processing and with an online connection between the tax DB2010 Peru agency and notaries that facilitates payment of municipal taxes. New valuation requirements were implemented to ensure DB2010 Suriname proper tax payments at the land registry, which increased the procedures, cost, and time required to register property. New online procedures make it easier to transfer property, DB2010 Uruguay and a new law assigned preemption rights to the municipality of Montevideo, adding a procedure to property transfers. By allowing registrars to submit electronic signatures, the DB2008 Guatemala time to register property has been reduced. Registering property has become easier; the creation of time DB2008 Honduras limits on certain procedures has sped up the process. A new notary fee schedule was issued which reduced the DB2008 Mexico costs of registering property. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 LATIN AMERICA 39 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower’s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors’ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors’ rights have been associated with distributed by public credit registries and higher ratios of private sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit information index measures rules and practices Private credit bureau coverage (% of adults) affecting the coverage, scope and accessibility of Number of individuals and firms listed in credit information available through a public credit largest private credit bureau as percentage of registry or a private credit bureau. The strength of adult population legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. Doing Business uses case scenarios to determine • Has 100 employees. the scope of the secured transactions system, • Is 100% domestically owned, as is the lender. involving a secured borrower and a secured lender and examining legal restrictions on the use of The ranking on the ease of getting credit is based on movable collateral. These scenarios assume that the the percentile rankings on its component indicators: borrower: the depth of credit information index (weighted at 37.5%) and the strength of legal rights index • Is a private, limited liability company. (weighted at 62.5%). • Has its headquarters and only base of operations in the largest business city. Doing Business 2012 LATIN AMERICA 40 GETTING CREDIT Where do the region’s economies stand today? How well do the credit information systems and suggest an answer (figure 6.1). The average ranking of collateral and bankruptcy laws in economies in Latin the region and comparator regions provide a useful America facilitate access to credit? The global rankings benchmark. of these economies on the ease of getting credit Figure 6.1 How economies in Latin America rank on the ease of getting credit Source: Doing Business database. Doing Business 2012 LATIN AMERICA 41 GETTING CREDIT Another way to assess how well regulations and particular score on the strength of legal rights index. institutions support lending and borrowing in the Figure 6.3 shows the same thing for the depth of credit region is to look at the distribution of its economies by information index. Higher scores indicate stronger their scores on the getting credit indicators. Figure 6.2 legal rights for borrowers and lenders and more credit shows how many economies in the region received a information. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How extensive—and how accessible—is and lenders in economies in Latin America? credit information in economies in Latin America? Number of economies in region with each score on strength Number of economies in region with each score on depth of of legal rights index (0–10) credit information index (0–6) Source: Doing Business database. Source: Doing Business database. Doing Business 2012 LATIN AMERICA 42 GETTING CREDIT What are the changes over time? When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Latin America (table 6.1)? Table 6.1 How have economies in Latin America made getting credit easier—or not? By Doing Business report year DB Year Economy Reform Brazil improved its credit information system by allowing DB2012 Brazil private credit bureaus to collect and share positive information. Chile strengthened its secured transactions system by DB2012 Chile implementing a unified collateral registry and a new legal framework for nonpossessory security interests. Honduras strengthened its secured transactions system through a new decree establishing a centralized and DB2012 Honduras computerized collateral registry and providing for out-of- court enforcement of collateral upon default. Mexico strengthened its secured transactions system by DB2012 Mexico implementing a centralized collateral registry with an electronic database that is accessible online. Paraguay improved its credit information system by DB2012 Paraguay establishing an online platform for financial institutions to exchange information with the public credit registry. Uruguay improved its credit information system by DB2012 Uruguay introducing a new online platform allowing access to credit reports for financial institutions, public utilities and borrowers. Guyana enhanced access to credit by establishing a regulatory framework that allows the licensing of private DB2011 Guyana credit bureaus and gives borrowers the right to inspect their data. Access to credit improved thanks to a new credit information law that guarantees the right of borrowers to inspect their DB2010 Colombia own data and new rules that make it mandatory for credit providers to consult and share information with credit bureaus. Doing Business 2012 LATIN AMERICA 43 DB Year Economy Reform The credit information system was strengthened with the adoption of a decree on access to public information that guarantees the right of borrowers to inspect their own data in any public institution. Access to credit and the regime for DB2010 Guatemala secured transactions were strengthened with a new collateral registry for movable assets that applies to all such assets and all types of creditors and debtors, and is searchable by debtor name. A resolution was passed that enhances the operations of the DB2010 Honduras public credit bureau; it classifies debtors into several groups and is designed to help banks manage risk. A new secured transactions law (Ley de Garantías Mobiliarias) was enacted, creating new forms of pledges over movable assets and a registry for the pledges. Under the new law, DB2009 Guatemala accounts receivable and inventory may be described in general terms when used as collateral and parties may agree to out-of-court enforcement of the security right at the time the security interest is created. Access to credit was facilitated by allowing borrowers to access their data and obtain a free credit report once a year. DB2008 Honduras In addition, parties to a security agreement can agree to enforce a security out of court by using a notary to take care of the out-of-court enforcement of collateral agreements. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 LATIN AMERICA 44 PROTECTING INVESTORS Investor protections matter for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority shareholder protections against directors’ use of Available legal remedies (damages, repayment corporate assets for personal gain—or self-dealing. of profits, fines, imprisonment and rescission The indicators distinguish 3 dimensions of investor of the transaction) protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and shareholders’ ability to sue officers and directors for Ease of shareholder suits index (0–10) misconduct (ease of shareholder suits index). The Documents and information available during ranking on the strength of investor protection index is trial the simple average of the percentile rankings on these 3 indices. To make the data comparable across Access to internal corporate documents economies, a case study uses several assumptions (directly or through a government inspector) about the business and the transaction. Strength of investor protection index (0–10) The business (Buyer): Simple average of the extent of disclosure, • Is a publicly traded corporation listed on the extent of director liability and ease of economy’s most important stock exchange shareholder suits indices (or at least a large private company with multiple shareholders). • The price is higher than the going price for used • Has a board of directors and a chief executive trucks, but the transaction goes forward. officer (CEO) who may legally act on behalf of • All required approvals are obtained, and all Buyer where permitted, even if this is not required disclosures made, though the specifically required by law. transaction is prejudicial to Buyer. The transaction involves the following details: • Shareholders sue the interested parties and the • Mr. James, a director and the majority members of the board of directors. shareholder of the company, proposes that the company purchase used trucks from another company he owns. Doing Business 2012 LATIN AMERICA 45 PROTECTING INVESTORS Where do the region’s economies stand today? How strong are investor protections in economies in measure all aspects related to the protection of Latin America? The global rankings of these economies minority investors, a higher ranking does indicate that on the strength of investor protection index suggest an economy’s regulations offer stronger investor an answer (figure 7.1). While the indicator does not protections against self-dealing in the areas measured. Figure 7.1 How economies in Latin America rank on the strength of investor protection index Source: Doing Business database. Doing Business 2012 LATIN AMERICA 46 PROTECTING INVESTORS But the overall ranking on the strength of investor be revealing (figure 7.2). Higher scores indicate protection index tells only part of the story. Economies stronger investor protections. Comparing the scores may offer strong protections in some areas but not across the region and with averages both for the others. So the scores recorded for economies in Latin region and for comparator regions can provide useful America on the extent of disclosure, extent of director insights. liability and ease of shareholder suits indices may also Figure 7.2 How strong are investor protections in economies in Latin America? Strength of investor protection index (0–10) Doing Business 2012 LATIN AMERICA 47 PROTECTING INVESTORS Extent of disclosure index (0–10) Doing Business 2012 LATIN AMERICA 48 PROTECTING INVESTORS Extent of director liability index (0–10) Doing Business 2012 LATIN AMERICA 49 PROTECTING INVESTORS Ease of shareholder suits index (0–10) Source: Doing Business database. Doing Business 2012 LATIN AMERICA 50 PROTECTING INVESTORS What are the changes over time? Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or revisions to court well-functioning courts and up-to-date procedural procedures. What investor protection reforms has rules that give minority investors the means to prove Doing Business recorded in Latin America (table 7.1)? their case and obtain a judgment within a reasonable Table 7.1 How have economies in Latin America strengthened investor protections—or not? By Doing Business report year DB Year Economy Reform El Salvador strengthened investor protections by allowing DB2012 El Salvador greater access to corporate information during the trial. Peru strengthened investor protections through a new law DB2012 Peru allowing minority shareholders to request access to nonconfidential corporate documents. An amendment to Chile’s securities law strengthened investor protections by requiring greater corporate disclosure and DB2011 Chile regulating the approval of transactions between interested parties. An amendment to the Company Law strengthened investor DB2010 Colombia protections by making it easier to sue directors in cases of prejudicial transactions between interested parties. Investor protection was strengthened by a decree requiring DB2008 Colombia increasing disclosure requirements for related-party transactions. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 LATIN AMERICA 51 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless complexity in tax rules avoided. According to Tax payments for a manufacturing company Doing Business data, in economies where it is more in 2010 (number per year adjusted for difficult and costly to pay taxes, larger shares of electronic or joint filing and payment) economic activity end up in the informal sector— Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures the taxes and mandatory contributions that a Time required to comply with 3 major taxes medium-size company must pay in a given year as (hours per year) well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about transactions made over the year. Information is Completing tax return forms, filing with also compiled on the frequency of filing and proper agencies payments as well as time taken to comply with tax Arranging payment or withholding laws. The ranking on the ease of paying taxes is the simple average of the percentile rankings on Preparing separate tax accounting books, if its component indicators: number of annual required payments, time and total tax rate, with a threshold Total tax rate (% of profit before all taxes) 2 being applied to the total tax rate. To make the data comparable across economies, several Profit or corporate income tax assumptions about the business and the taxes and Social contributions and labor taxes paid by contributions are used. the employer • TaxpayerCo is a medium-size business that Property and property transfer taxes started operations on January 1, 2009. Dividend, capital gains and financial • The business starts from the same financial transactions taxes position in each economy. All the taxes and mandatory contributions paid during Waste collection, vehicle, road and other taxes the second year of operation are recorded. • Taxes and mandatory contributions include • Taxes and mandatory contributions are corporate income tax, turnover tax and all measured at all levels of government. labor taxes and contributions paid by the company. • A range of standard deductions and exemptions are also recorded. 2 The threshold is defined as the highest total tax rate among the top 30% of economies in the ranking on the total tax rate. It will be calculated and adjusted on a yearly basis. The threshold is not based on any underlying theory. Instead, it is intended to mitigate the effect of very low tax rates on the ranking on the ease of paying taxes. Doing Business 2012 LATIN AMERICA 52 PAYING TAXES Where do the region’s economies stand today? What is the administrative burden of complying with information for assessing the tax compliance burden taxes in economies in Latin America—and how much for businesses (figure 8.1). The average ranking of the do firms pay in taxes? The global rankings of these region and comparator regions provide a useful economies on the ease of paying taxes offer useful benchmark. Figure 8.1 How economies in Latin America rank on the ease of paying taxes Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 LATIN AMERICA 53 PAYING TAXES The indicators underlying the rankings may be more as well as the total tax rate (figure 8.2). Comparing revealing. Data collected by Doing Business show what these indicators across the region and with averages it takes to comply with tax regulations in each both for the region and for comparator regions can economy in the region—the number of payments per provide useful insights. year and the time required to prepare and file taxes— Figure 8.2 How easy is it to pay taxes in economies in Latin America—and what are the total tax rates? Payments (number per year) Doing Business 2012 LATIN AMERICA 54 PAYING TAXES Time (hours per year) Doing Business 2012 LATIN AMERICA 55 PAYING TAXES Total tax rate (% of profit) Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 LATIN AMERICA 56 PAYING TAXES What are the changes over time? Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Latin America (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How have economies in Latin America made paying taxes easier—or not? By Doing Business report year DB Year Economy Reform Belize made paying taxes easier for firms by improving DB2012 Belize electronic filing and payment for social security contributions, an option now used by the majority of taxpayers. DB2012 Bolivia Bolivia raised social security contribution rates for employers. Colombia eased the administrative burden of paying taxes for DB2012 Colombia firms by establishing mandatory electronic filing and payment for some of the major taxes. In Costa Rica online payment of social security contributions DB2012 Costa Rica is now widespread and used by the majority of taxpayers. Honduras made paying taxes costlier for firms by raising the DB2012 Honduras solidarity tax rate. Mexico continued to ease the administrative burden of paying taxes for firms by ending the requirement to file a DB2012 Mexico yearly value added tax return and reduced filing requirements for other taxes Nicaragua made paying taxes easier for companies by DB2012 Nicaragua promoting electronic filing and payment of the major taxes, an option now used by the majority of taxpayers. Paraguay made paying taxes more burdensome for DB2012 Paraguay companies by introducing new tax declarations that must be filed monthly. Doing Business 2012 LATIN AMERICA 57 DB Year Economy Reform Peru made paying taxes easier for companies by improving electronic filing and payment of the major taxes and DB2012 Peru promoting the use of the electronic option among the majority of taxpayers. República Bolivariana de Venezuela made paying taxes DB2012 Venezuela, RB costlier for firms by doubling the municipal economic activities tax (sales tax). Mexico increased taxes on companies by raising several tax rates, including the corporate income tax and the rate on DB2011 Mexico cash deposits. At the same time, the administrative burden was reduced slightly with more options for online payment and increased use of accounting software. Nicaragua increased taxes on firms by raising social security contribution rates and introducing a 10% withholding tax on DB2011 Nicaragua the gross interest accrued from deposits. It also improved electronic payment of taxes through bank transfer. Panama reduced the corporate income tax rate, modified DB2011 Panama various taxes and created a new tax court of appeals. República Bolivariana de Venezuela abolished the tax on DB2011 Venezuela, RB financial transactions. The tax burden on businesses was eased with the DB2010 Colombia introduction of electronic tax filing and payment, and some payments were reduced. The government eased payment of and filing for value added and corporate income taxes by increasing electronic DB2010 Guatemala compliance thresholds and extending the electronic system to most banks. Taxpaying was eased by introducing electronic payment DB2010 Mexico systems for payroll, property, and social security taxes. Doing Business 2012 LATIN AMERICA 58 DB Year Economy Reform Taxpaying was made easier with the use of software, distributed free of charge, for value added taxes. Additionally DB2010 Peru the cash flow of businesses was eased by reducing the check tax and accelerating depreciation. Two new taxes were introduced, increasing the tax burden on DB2010 Venezuela, RB businesses. Colombia made electronic social security contributions DB2009 Colombia mandatory for companies with more than 30 employees and created unified electronic forms for filing taxes. The efficiency of its tax system was improved by introducing DB2009 Honduras electronic filing and payment. A new tax law was introduced that abolishes the asset tax (IMPAC) and the possible eventual amalgamation of income tax applicable to corporations and individuals with business DB2009 Mexico activities. A new withholding tax on cash deposit interest is being implemented, and new reporting rules were introduced for value-added tax. A new tax law abolished COFIS (a 3% sales tax) and reduced DB2009 Uruguay the value-added tax from 23% to 22%. A tax on financial transactions was reintroduced, which is levied at a rate of 1.5% on all payments made to third parties. DB2009 Venezuela, RB The tax, which had been abolished in February 2006, was levied at a rate of 0.5% before. Paying taxes is now quicker and the corporate tax rate of 35% is progressively being reduced to 34% in 2007 and 33% in DB2008 Colombia 2008. With the simplification of accounting rules, 188 hours were cut, a reduction of 41%. The corporate tax rate was reduced from 33% in 2004 to 30% DB2008 Mexico in 2005, to 29% in 2006 and to 28% for 2007 and subsequent years. Doing Business 2012 LATIN AMERICA 59 DB Year Economy Reform The corporate income tax was reduced and various DB2008 Uruguay contributions made by employers were simplified to a single rate. The number of payments and the total tax rate were both DB2008 Venezuela, RB increased. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 LATIN AMERICA 60 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining all the documents (excluding tariffs) associated with exporting and importing a standard shipment of goods by ocean Inland transport and handling transport, and the number of documents necessary Customs clearance and inspections to complete the transaction. The indicators cover procedural requirements such as documentation Port and terminal handling requirements and procedures at customs and other Does not include ocean transport time regulatory agencies as well as at the port. They also cover trade logistics, including the time and cost of Cost required to export and import (US$ per inland transport to the largest business city. The container) ranking on the ease of trading across borders is All documentation the simple average of the percentile rankings on its component indicators: documents, time and cost Inland transport and handling to export and import. Customs clearance and inspections To make the data comparable across economies, Port and terminal handling Doing Business uses several assumptions about the Official costs only, no bribes business and the traded goods. The business: • Do not require refrigeration or any other • Is of medium size and employs 60 people. special environment. • Is located in the periurban area of the • Do not require any special phytosanitary or economy’s largest business city. environmental safety standards other than • Is a private, limited liability company, accepted international standards. domestically owned, formally registered • Are one of the economy’s leading export or and operating under commercial laws and import products. regulations of the economy. • Are transported in a dry-cargo, 20-foot full The traded goods: container load. • Are not hazardous nor do they include military items. Doing Business 2012 LATIN AMERICA 61 TRADING ACROSS BORDERS Where do the region’s economies stand today? How easy it is for businesses in economies in Latin across borders suggest an answer (figure 9.1). The America to export and import goods? The global average ranking of the region and comparator regions rankings of these economies on the ease of trading provide a useful benchmark. Figure 9.1 How economies in Latin America rank on the ease of trading across borders Source: Doing Business database. The indicators underlying the rankings may be more documents, the time and the cost (figure 9.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to export or import a standard container of averages both for the region and for comparator goods in each economy in the region: the number of regions can provide useful insights. Doing Business 2012 LATIN AMERICA 62 TRADING ACROSS BORDERS Figure 9.2 What it takes to trade across borders in economies in Latin America Documents to export (number) Doing Business 2012 LATIN AMERICA 63 TRADING ACROSS BORDERS Time to export (days) Doing Business 2012 LATIN AMERICA 64 TRADING ACROSS BORDERS Cost to export (US$ per container) Doing Business 2012 LATIN AMERICA 65 TRADING ACROSS BORDERS Documents to import (number) Doing Business 2012 LATIN AMERICA 66 TRADING ACROSS BORDERS Time to import (days) Doing Business 2012 LATIN AMERICA 67 TRADING ACROSS BORDERS Cost to import (US$ per container) Source: Doing Business database. Doing Business 2012 LATIN AMERICA 68 TRADING ACROSS BORDERS What are the changes over time? In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Latin America (table 9.1)? risk-based inspections and electronic data interchange Table 9.1 How have economies in Latin America made trading across borders easier—or not? By Doing Business report year DB Year Economy Reform Chile made trading across borders faster by implementing an DB2012 Chile online electronic data interchange system for customs operations. Honduras made trading across borders faster by DB2012 Honduras implementing a web-based electronic data interchange system and X-ray machines at the port of Puerto Cortes. Guyana improved its risk profiling system for customs DB2011 Guyana inspection, reducing physical inspections of shipments and the time to trade. Nicaragua expedited trade by migrating to a new electronic data interchange system for customs, setting up a physical DB2011 Nicaragua one-stop shop for exports and investing in new equipment at the port of Corinto. Peru made trading easier by implementing a new web-based DB2011 Peru electronic data interchange system, risk-based inspections and payment deferrals. Implementation of an electronic declaration system has DB2010 Colombia expedited customs clearance. Registration with the tax authorities was streamlined with the introduction of a single tax identification number for DB2010 Guyana corporate, value added, and labor taxes. Implementation of an electronic declaration system reduced customs clearance times for exports and imports. Doing Business 2012 LATIN AMERICA 69 DB Year Economy Reform Trading times were reduced with the implementation of an DB2010 Paraguay electronic export system and improvements to the risk-based inspection system. Additional cranes have expedited port and terminal handling DB2010 Peru activities. The time to export was reduced by four days. Authorities merged the current manifest reporting system, “Merchante� (for imports) and “Siscomex� (for exports) into a new and DB2009 Brazil unique system, “Siscomex Carga.� Due to an increase in the shares of traders allotted “green line� status, the number of inspections was reduced, speeding up the customs process. Trading across borders was expedited: better banking services and the implementation of e-payments, electronic DB2009 Colombia data interchange, and coordinated inspections in customs reduced the time to import and export. The trade process was streamlined through improvements in port infrastructure and banking services and a reduction in DB2009 Ecuador the number of documents required. The changes reduced the time to import and export. El Salvador reduced time to import and export through modernization of its customs system and physical inspections, DB2009 El Salvador increased traffic control, implementation of a single window, and improvements in the banking sector. Importing was made easier by abolishing a requirement for DB2009 Honduras consular legalization of trade documents. In trade, the country implemented electronic data DB2009 Uruguay interchange and improved its banking system, reducing the time to export by five days and the time to import. In ‘trading across borders', Brazil has also upgraded their EDI DB2008 Brazil system and reduced importing delays. Doing Business 2012 LATIN AMERICA 70 DB Year Economy Reform By extending port operating hours, adopting more selective DB2008 Colombia customs inspections, time for ports and terminal handling activities has been reduced. Traders were allowed to directly transmit customs DB2008 Costa Rica declarations electronically and improved the capacity of the customs services resulting in reduced cross border trade. A one-stop shop for importers was established thereby DB2008 El Salvador facilitating the documentation and approval process. The implementation of a new Electronic Data Interchange (EDI) system for electronic submission of customs DB2008 Guatemala declarations and the introduction of risk-based inspection regime decreased the time for exporting procedures one day. Further hurdles were added to cross border trading DB2008 Venezuela, RB procedures by requiring traders to obtain permits for each shipment leading to an increase time. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 LATIN AMERICA 71 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and What do the indicators cover? the judge or court officer Doing Business measures the efficiency of the Steps to file and serve the case judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects data relating to the time, cost and procedural Time required to complete procedures complexity of resolving a commercial lawsuit. The (calendar days) ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its component indicators: procedures, time and cost. Time for trial and obtaining judgment The dispute in the case study involves the breach Time to enforce the judgment of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This distinguishes the case from simple debt No bribes enforcement. To make the data comparable across Average attorney fees economies, Doing Business uses several assumptions about the case: Court costs, including expert fees • The seller and buyer are located in the Enforcement costs economy’s largest business city. • The buyer orders custom-made goods, then fails to pay. • The dispute on the quality of the goods • The seller sues the buyer before a requires an expert opinion. competent court. • The judge decides in favor of the seller; there • The value of the claim is 200% of income is no appeal. per capita. • The seller enforces the judgment through a • The seller requests a pretrial attachment to public sale of the buyer’s movable assets. secure the claim. Doing Business 2012 LATIN AMERICA 72 ENFORCING CONTRACTS Where do the region’s economies stand today? How efficient is the process of resolving a commercial the ease of enforcing contracts suggest an answer dispute through the courts in economies in Latin (figure 10.1). The average ranking of the region and America? The global rankings of these economies on comparator regions provide a useful benchmark. Figure 10.1 How economies in Latin America rank on the ease of enforcing contracts Source: Doing Business database. The indicators underlying the rankings may also be procedures, the time and the cost (figure 10.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to enforce a contract through the courts in averages both for the region and for comparator each economy in the region: the number of regions can provide useful insights. Doing Business 2012 LATIN AMERICA 73 ENFORCING CONTRACTS Figure 10.2 What it takes to enforce a contract through the courts in economies in Latin America Procedures (number) Doing Business 2012 LATIN AMERICA 74 ENFORCING CONTRACTS Time (days) Doing Business 2012 LATIN AMERICA 75 ENFORCING CONTRACTS Cost (% of claim) Source: Doing Business database. Doing Business 2012 LATIN AMERICA 76 ENFORCING CONTRACTS What are the changes over time? Economies in all regions have improved contract periodic reviews to clear inactive cases from the docket enforcement in recent years. A judiciary can be and by making procedures faster. What reforms improved in different ways. Higher-income economies making it easier (or more difficult) to enforce contracts tend to look for ways to enhance efficiency by has Doing Business recorded in Latin America (table introducing new technology. Lower-income economies 10.1)? often work on reducing backlogs by introducing Table 10.1 How have economies in Latin America made enforcing contracts easier—or not? By Doing Business report year DB Year Economy Reform Honduras adopted a new civil procedure code that modified DB2012 Honduras litigation procedures for enforcing a contract. Nicaragua raised the monetary threshold for commercial claims that can be brought to the Managua local civil court, DB2012 Nicaragua leaving lower-value claims in the local courts, where proceedings are simpler and faster. Contract enforcement was improved by authorizing new DB2010 Costa Rica modes for service of process and simplified auction procedures by allowing publication of a single auction notice. The government eased contract enforcement by introducing deadlines for filing evidence and contesting enforcement DB2010 Peru procedures. In addition, electronic judicial notices are permissible in lieu of publication in the official gazette. Several amendments were made to the Code of Civil Procedure to reform the rules on enforcing judgments and to make debt collection easier for creditors. Debtors are now forced to cooperate in the disclosure of their assets for DB2008 Brazil attachment and can be fined if they do not cooperate. Last year, Brazil also restricted the number of cases that can go to the Supreme Court and introduced electronic filing of documents in court. Courts were reformed, increasing the number of cases to be DB2008 Guatemala decided by justices of peace hereby expanding their small claims courts. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 LATIN AMERICA 77 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome of insolvency proceedings involving domestic Fees of insolvency administrators entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial institutions. The data are derived from survey Assessors’ and auctioneers’ fees responses by local insolvency practitioners and Other related fees verified through a study of laws and regulations as well as public information on bankruptcy systems. Recovery rate for creditors (cents on the dollar) The ranking on the ease of resolving insolvency is based on the recovery rate, which is recorded as Measures the cents on the dollar recovered cents on the dollar recouped by creditors through by creditors reorganization, liquidation or debt enforcement Present value of debt recovered (foreclosure) proceedings. The recovery rate is a Official costs of the insolvency proceedings function of time, cost and other factors, such as are deducted lending rate and the likelihood of the company continuing to operate. Depreciation of furniture is taken into account To make the data comparable across economies, Doing Business uses several assumptions about the Outcome for the business (survival or not) business and the case. It assumes that the affects the maximum value that can be company: recovered • Is a domestically owned, limited liability company operating a hotel. • Has 201 employees, 1 main secured creditor • Operates in the economy’s largest business and 50 unsecured creditors. city. • Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2012 LATIN AMERICA 78 RESOLVING INSOLVENCY Where do the region’s economies stand today? How efficient are insolvency proceedings in economies benchmark for assessing the efficiency of insolvency in Latin America? The global rankings of these proceedings. Speed, low costs and continuation of economies on the ease of resolving insolvency suggest viable businesses characterize the top-performing an answer (figure 11.1). The average ranking of the economies. region and comparator regions provide a useful Figure 11.1 How economies in Latin America rank on the ease of resolving insolvency Source: Doing Business database. The indicators underlying the rankings may be more Comparing these indicators across the region and with revealing. Data collected by Doing Business show the averages both for the region and for comparator average time and cost required to resolve insolvency regions can provide useful insights. as well as the average recovery rate (figure 11.2). Doing Business 2012 LATIN AMERICA 79 RESOLVING INSOLVENCY Figure 11.2 How efficient is the insolvency process in economies in Latin America Time (years) Doing Business 2012 LATIN AMERICA 80 RESOLVING INSOLVENCY Cost (% of estate) Doing Business 2012 LATIN AMERICA 81 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) * Indicates a “no practice� mark. See the data notes for details. Source: Doing Business database. Doing Business 2012 LATIN AMERICA 82 RESOLVING INSOLVENCY What are the changes over time? A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Latin America (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How have economies in Latin America made resolving insolvency easier—or not? By Doing Business report year DB Year Economy Reform Colombia amended regulations governing insolvency DB2012 Colombia proceedings to simplify the proceedings and reduce their time and cost Several decrees were passed continuing efforts to regulate DB2010 Colombia the profession of insolvency administrators. An insolvency law was enacted aimed at keeping distressed DB2010 Uruguay companies operating as going concerns. Applications for voluntary restructuring of financially DB2009 Bolivia distressed companies were suspended. The only option now is a lengthy bankruptcy procedure that typically takes years. Authorities also introduced two new insolvency proceedings: a reorganization procedure to restructure insolvent companies and a mandatory liquidation procedure. Its new DB2009 Colombia insolvency law tightens time limits for negotiating reorganization agreements. Before, the term allowed was six months, with a possible extension of eight months. The new law limits the term to four months, and the extension to two. The bankruptcy law was amended to make reorganization more accessible. Now debtors and creditors may enter into a DB2009 Mexico reorganization agreement at any stage of the insolvency procedure, which is expected to speed the process. Bankruptcy judges were stripped of jurisdiction over labor lawsuits and exempted such claims from the automatic stay applicable to claims, which are to be continued and DB2008 Argentina concluded at the labor courts before presentation to the bankruptcy court for verification. Also, a company must now set aside 1% of their gross revenues to satisfy labor claims - even if the company did not turn a profit. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2012 LATIN AMERICA 83 Source: Doing Business database. Doing Business 2012 LATIN AMERICA 84 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the protection of property rights—and their effect on ECONOMY CHARACTERISTICS businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of regulation, such as the number of procedures to start a Gross national income (GNI) per capita business or to register and transfer commercial property. Second, they gauge the time and cost of Doing Business 2012 reports 2010 income per capita achieving a regulatory goal or complying with as published in the World Bank’s World regulation, such as the time and cost to enforce a Development Indicators 2011. Income is calculated contract, go through bankruptcy or trade across using the Atlas method (current US$). For cost borders. Third, they measure the extent of legal indicators expressed as a percentage of income per protections of property, for example, the protections capita, 2010 GNI in U.S. dollars is used as the of investors against looting by company directors or denominator. Data were not available from the the range of assets that can be used as collateral World Bank for Afghanistan; Australia; The Bahamas; according to secured transactions laws. Fourth, a set of Bahrain; Brunei Darussalam; Canada; Cyprus; indicators documents the tax burden on businesses. Djibouti; the Islamic Republic of Iran; Kuwait; New Finally, a set of data covers different aspects of Zealand; Oman; Puerto Rico (territory of the United employment regulation. States); Qatar; Saudi Arabia; Suriname; Taiwan, China; the United Arab Emirates; West Bank and The data for all sets of indicators in Doing Business Gaza; and the Republic of Yemen. In these cases 3 2012 are for June 2011. GDP or GNP per capita data and growth rates from the International Monetary Fund’s World Economic Outlook database and the Economist Intelligence Methodology Unit were used. The Doing Business data are collected in a standardized way. To start, the Doing Business team, Region and income group with academic advisers, designs a questionnaire. The Doing Business uses the World Bank regional and questionnaire uses a simple business case to ensure income group classifications, available at comparability across economies and over time—with http://www.worldbank.org/data/countryclass. The assumptions about the legal form of the business, its World Bank does not assign regional classifications size, its location and the nature of its operations. to high-income economies. For the purpose of the Questionnaires are administered through more than Doing Business report, high-income OECD 9,028 local experts, including lawyers, business economies are assigned the “regional� classification consultants, accountants, freight forwarders, OECD high income. Figures and tables presenting government officials and other professionals routinely regional averages include economies from all administering or advising on legal and regulatory income groups (low, lower middle, upper middle requirements. These experts have several rounds of and high income). interaction with the Doing Business team, involving conference calls, written correspondence and visits by Population the team. For Doing Business 2012 team members Doing Business 2012 reports midyear 2010 visited 40 economies to verify data and recruit population statistics as published in World respondents. The data from questionnaires are Development Indicators 2011. subjected to numerous rounds of verification, leading to revisions or expansions of the information collected. 3 The data for paying taxes refer to January – December 2010. Doing Business 2012 LATIN AMERICA 85 The Doing Business methodology offers several business lacks information or is unable to follow up advantages. It is transparent, using factual information promptly. Alternatively, the business may choose to about what laws and regulations say and allowing disregard some burdensome procedures. For both multiple interactions with local respondents to clarify reasons the time delays reported in Doing Business potential misinterpretations of questions. Having 2012 would differ from the recollection of representative samples of respondents is not an issue; entrepreneurs reported in the World Bank Enterprise Doing Business is not a statistical survey, and the texts Surveys or other perception surveys. of the relevant laws and regulations are collected and answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be Subnational Doing Business indicators collected in a large sample of economies. Because This year Doing Business published a subnational study standard assumptions are used in the data collection, for the Philippines and a regional report for Southeast comparisons and benchmarks are valid across Europe covering 7 economies (Albania, Bosnia and economies. Finally, the data not only highlight the Herzegovina, Kosovo, the former Yugoslav Republic of extent of specific regulatory obstacles to business but Macedonia, Moldova, Montenegro and Serbia) and 22 also identify their source and point to what might be cities. It also published a city profile for Juba, in the reformed. Republic of South Sudan. Information on the methodology for each Doing The subnational studies point to differences in Business topic can be found on the Doing Business business regulation and its implementation—as well as website at http://www.doingbusiness.org/methodology/. in the pace of regulatory reform—across cities in the same economy. For several economies subnational studies are now periodically updated to measure Limits to what is measured change over time or to expand geographic coverage The Doing Business methodology has 5 limitations that to additional cities. This year that is the case for the should be considered when interpreting the data. First, subnational studies in the Philippines; the regional the collected data refer to businesses in the economy’s report in Southeast Europe; the ongoing studies in largest business city and may not be representative of Italy, Kenya and the United Arab Emirates; and the regulation in other parts of the economy. To address projects implemented jointly with local think tanks in this limitation, subnational Doing Business indicators Indonesia, Mexico and the Russian Federation. were created (see the section on subnational Doing Besides the subnational Doing Business indicators, Business indicators). Second, the data often focus on a Doing Business conducted a pilot study this year on specific business form—generally a limited liability the second largest city in 3 large economies to assess company (or its legal equivalent) of a specified size— within-country variations. The study collected data for and may not be representative of the regulation on Rio de Janeiro in addition to São Paulo in Brazil, for other businesses, for example, sole proprietorships. Beijing in addition to Shanghai in China and for St. Third, transactions described in a standardized case Petersburg in addition to Moscow in Russia. scenario refer to a specific set of issues and may not represent the full set of issues a business encounters. Fourth, the measures of time involve an element of Changes in what is measured judgment by the expert respondents. When sources indicate different estimates, the time indicators The methodology for 3 of the Doing Business topics reported in Doing Business represent the median was updated this year—getting credit, dealing with values of several responses given under the construction permits and paying taxes. assumptions of the standardized case. First, for getting credit, the scoring of one of the 10 Finally, the methodology assumes that a business has components of the strength of legal rights index was full information on what is required and does not amended to recognize additional protections of waste time when completing procedures. In practice, secured creditors and borrowers. Previously the completing a procedure may take longer if the highest score of 1 was assigned if secured creditors Doing Business 2012 LATIN AMERICA 86 were not subject to an automatic stay or moratorium business and a new measure, the “distance to frontier.� on enforcement procedures when a debtor entered a While the ease of doing business ranking compares court-supervised reorganization procedure. Now the economies with one another at a point in time, the highest score of 1 is also assigned if the law provides distance to frontier measure shows how much the secured creditors with grounds for relief from an regulatory environment for local entrepreneurs in each automatic stay or moratorium (for example, if the economy has changed over time. movable property is in danger) or sets a time limit for Ease of doing business the automatic stay. The ease of doing business index ranks economies Second, because the ease of doing business index now from 1 to 183. For each economy the ranking is includes the getting electricity indicators, procedures, calculated as the simple average of the percentile time and cost related to obtaining an electricity rankings on each of the 10 topics included in the index connection were removed from the dealing with in Doing Business 2012: starting a business, dealing construction permits indicators. with construction permits, registering property, getting Third, a threshold has been introduced for the total tax credit, protecting investors, paying taxes, trading rate for the purpose of calculating the ranking on the across borders, enforcing contracts, resolving ease of paying taxes. All economies with a total tax insolvency and, new this year, getting electricity. The rate below the threshold (which will be calculated and employing workers indicators are not included in this adjusted on a yearly basis) will now receive the same year’s aggregate ease of doing business ranking. In ranking on the total tax rate indicator. The threshold is addition to this year’s ranking, Doing Business presents not based on any underlying theory. Instead, it is a comparable ranking for the previous year, adjusted meant to emphasize the purpose of the indicator: to for any changes in methodology as well as additions of 4 highlight economies where the tax burden on business economies or topics. is high relative to the tax burden in other economies. Construction of the ease of doing business index Giving the same ranking to all economies whose total tax rate is below the threshold avoids awarding Here is one example of how the ease of doing business economies in the scoring for having an unusually low index is constructed. In the Republic of Korea it takes 5 total tax rate, often for reasons unrelated to procedures, 7 days and 14.6% of annual income per government policies toward enterprises. For example, capita in fees to open a business. There is no minimum economies that are very small or that are rich in capital required. On these 4 indicators Korea ranks in th th rd natural resources do not need to levy broad-based the 18 , 14 , 53 and 0 percentiles. So on average st taxes. Korea ranks in the 21 percentile on the ease of th starting a business. It ranks in the 12 percentile on th th getting credit, 25 percentile on paying taxes, 8 Data challenges and revisions th percentile on enforcing contracts, 7 percentile on resolving insolvency and so on. Higher rankings Most laws and regulations underlying the Doing indicate simpler regulation and stronger protection of Business data are available on the Doing Business property rights. The simple average of Korea’s website at http://www.doingbusiness.org. All the st percentile rankings on all topics is 21 . When all sample questionnaires and the details underlying the economies are ordered by their average percentile indicators are also published on the website. Questions on the methodology and challenges to data can be submitted through the website’s “Ask a Question� 4 In case of revisions to the methodology or corrections to the function at http://www.doingbusiness.org. underlying data, the data are back-calculated to provide a comparable time series since the year the relevant economy or topic was first included in the data set. The time series is available on the Ease of doing business and distance to Doing Business website (http://www.doingbusiness.org). The Doing Business report publishes yearly rankings for the year of publication frontier as well as the previous year to shed light on year-to-year developments. Six topics and more than 50 economies have been This year’s report presents results for 2 aggregate added since the inception of the project. Earlier rankings on the measures: the aggregate ranking on the ease of doing ease of doing business are therefore not comparable. Doing Business 2012 LATIN AMERICA 87 rankings, Korea stands at 8 in the aggregate ranking investors). These correlations suggest that economies on the ease of doing business. rarely score universally well or universally badly on the indicators. More complex aggregation methods—such as principal components and unobserved components— Consider the example of Canada. It stands at 12 in the yield a ranking nearly identical to the simple average aggregate ranking on the ease of doing business. Its 5 used by Doing Business. Thus, Doing Business uses ranking is 3 on both starting a business and resolving the simplest method: weighting all topics equally and, insolvency, and 5 on protecting investors. But its within each topic, giving equal weight to each of the ranking is only 59 on enforcing contracts, 42 on 6 topic components. trading across borders and 156 on getting electricity. If an economy has no laws or regulations covering a Variation in performance across the indicator sets is specific area—for example, insolvency—it receives a not at all unusual. It reflects differences in the degree “no practice� mark. Similarly, an economy receives a of priority that government authorities give to “no practice� or “not possible� mark if regulation exists particular areas of business regulation reform and the but is never used in practice or if a competing ability of different government agencies to deliver regulation prohibits such practice. Either way, a “no tangible results in their area of responsibility. practice� mark puts the economy at the bottom of the Economies that improved the most across 3 or more ranking on the relevant indicator. Doing Business topics in 2010/11 The ease of doing business index is limited in scope. It Doing Business 2012 uses a simple method to calculate does not account for an economy’s proximity to large which economies improved the most in the ease of markets, the quality of its infrastructure services (other doing business. First, it selects the economies that in than services related to trading across borders and 2010/11 implemented regulatory reforms making it getting electricity), the strength of its financial system, easier to do business in 3 or more of the 10 topics the security of property from theft and looting, its 7 included in this year’s ease of doing business ranking. macroeconomic conditions or the strength of Thirty economies meet this criterion: Armenia, Burkina underlying institutions. Faso, Burundi, Cape Verde, the Central African Variability of economies’ rankings across topics Republic, Chile, Colombia, the Democratic Republic of Congo, Côte d’Ivoire, The Gambia, Georgia, Korea, Each indicator set measures a different aspect of the Latvia, Liberia, FYR Macedonia, Mexico, Moldova, business regulatory environment. The rankings of an Montenegro, Morocco, Nicaragua, Oman, Peru, economy can vary, sometimes significantly, across Russian Federation, São Tomé and Príncipe, Senegal, indicator sets. The average correlation coefficient Sierra Leone, Slovenia, the Solomon Islands, South between the 10 indicator sets included in the Africa and Ukraine. Second, Doing Business ranks these aggregate ranking is 0.36, and the coefficients economies on the increase in their ranking on the ease between any 2 sets of indicators range from 0.17 of doing business from the previous year using (between protecting investors and getting electricity) comparable rankings. to 0.57 (between starting a business and protecting Selecting the economies that implemented regulatory 5 reforms in at least 3 topics and improved the most in See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, “Doing Business Indicators: Why Aggregate, and How to the aggregate ranking is intended to highlight Do It� (World Bank, Washington, DC, 2005). Principal components economies with ongoing, broad-based reform and unobserved components methods yield a ranking nearly programs. identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less importance in the context of a specific economy. 6 7 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2012 LATIN AMERICA 88 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2012 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 183 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Reports http://www.doingbusiness.org/custom-query/ Access to Doing Business reports as well as subnational and regional reports, reform case Law library studies and customized economy and regional Online collection of business laws and profiles regulations relating to business and gender http://www.doingbusiness.org/reports/ issues http://www.doingbusiness.org/law-library/ Methodology http://wbl.worldbank.org/ The methodologies and research papers underlying Doing Business Contributors http://www.doingbusiness.org/methodology/ More than 9,000 specialists in 183 economies who participate in Doing Business Research http://www.doingbusiness.org/contributors/doing- Abstracts of papers on Doing Business topics business/ and related policy issues http://www.doingbusiness.org/research/