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| Caribbean Property Magazine Home / July 2008 / 'Caribbean Emerging Nations' | SEND THIS PAGE TO A FRIEND  |
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JULY  2 0 0 8Issue 18
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| CARIBBEAN REPORT ON EMERGING NATIONS Doing Business in Small Island Developing States (SIDS) By Raquel B Tejeda Emerging Nations have one common component....the willingness to change or reform in order to attract business and capital in to the country. Most Caribbean Basin nations are emerging nations and many are involved in changing unacceptable practices that for decades have kept business investment in to the developing countries at a standstill. Thirteen of the thirty two nations that comprise the Small Island Developing States (SID) are Caribbean Basin countries. All are considered to be emerging, or developing nations: 1. Antigua and Barbuda, Obviously to attract new business and to stimulate any economy, a country must ensure that ethical business practices by the government are in place as well as practices that ensure an ease in conducting business.  IF SIDS ADOPTED THE PRACTICES TOP PERFORMERS IN THE REGION …THEY WOULD RANK 2ND GLOBALLY IN EASE OF DOING BUSINESS Interestingly, the countries that comprise the Small Island Developing States (SIDS) can learn from each other and those lessons could lead to a powerful partnership. If SIDS countries were to adopt the practices of each top performer in the region on the ten areas measured for doing business, they would collectively rank second globally on the overall ease of doing business. | ||||||||||||||||||||
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This means adopting Mauritius's company start-up regulations and investor protections, St. Vincent and the Grenadines' licensing requirements, Marshall Islands’ flexible labor regulations, Palau’s efficient property transfer, Singapore’s credit trade practices and court procedures, Maldives’ tax regulations, and Jamaica’s bankruptcy practices and Mauritius's company start-up regulations and investor protections. The best practices of small island developing countries would combine to make a globally competitive economy – truly a top place for doing business. Anyone seeking to relocate a business or start up a new business overseas, particularly in a nation classified as developing or emerging, has to really investigate the barriers that will be encountered. The good news is that the Caribbean Basin countries are performing well in the 2007-2008 ranking with significant progress made in many nations. A new report from the WB indicates that small island developing states (SIDS) perform well in three key areas of doing business, these areas are: 1. dealing with licensesAnd, SIDS are performing relatively well: 1. on the ease of starting a businessPriorities for reform in most of these countries are still needed in the areas of: 1. closing a business According to the report, which compares the ease of operating a private business in the 32 SIDS, the states that are actively initiating change and reforming economies, are successful in attracting new domestic and foreign investment and are also stimulating excellent private sector growth. The report found that the 32 small states surveyed rank among the top half of all economies and introduced 18 (out of 200) reforms between April 2006 and June 2007. “The report is a valuable reference for policymakers,” said Angus Friday, Permanent Representative of Grenada to the UN and Chairman of the AOSIS. “It provides information on the ease of doing business across Small Island Developing States that will help the governments learn international best practices for designing and implementing reforms.” A total score for each of the ten indicators for the 32 SIDS nations was tabulated and the nations were then ranked according to the ease of doing business in each of the countries as follows:  A total score for each of the ten indicators for the 32 SIDS nations was tabulated and the nations were then ranked according to the ease of doing business in each of the countries as follows; Within the SIDS Caribbea n Basin countries St. Lucia ranked the highest and a total of 8 Caribbean countries were in the top fifteen. As to be expected, Haiti ranked the lowest of the Caribbean Basin nations. Of the 13 SIDS countries within the Caribbean Basin, the top three in Net Number of Reforms is Trinidad and Tobago, tied with the Dominica Republic and in second place, Haiti. Surprisingly, not one of the other ten countries in the Caribbean Basin had reforms set in to motion.  1. Under the indicator - Procedures to Start a Business - the small nation of Dominica was in first place, with Grenada, St Lucia, Jamaica tied for second and Antigua and Barbuda in third position. 2. Under the indicator - Time to Start a Business (Days) - Jamaica was the winner followed by St Vincent & the Grenadines in second place and Dominica in third spot. The two worst rankings belonged to Haiti with 202 days average to start a business and to Suriname with an incredible 694 days on average to start a business.
4. Under the indicator - Minimum Capital to Start a Business - all SIDS Caribbean Basin countries tied for first place and Haiti was in last place.
CHANGE MEANS REFORM El Salvador cut the time to start a business—with no changes to the law. The reform started in 2003 in the company registry with a single goal: to become the first registry in Latin America to earn an ISO certification. The staff developed time-and-motion studies of all transactions and cut unnecessary steps. Customer surveys ensured timely feedback. In 18 months start-up time dropped to 40 days and the share of satisfied customers rose to 87%. MOST REFORMERS ARE BAD MARKETERS... But reformers went even further, transferring staff from the Ministries of Finance and Labor and the social security institute to the company registry. Entrepreneurs now register with all 4 agencies in a single visit and can open their business in 26 days—down from 115 before the reform. Whatever reforms are made, reformers should advertise the changes and monitor their effect on new registrations. Most reformers are bad marketers. So, few entrepreneurs know how much easier registration has become.  Finally, reformers best stick to one principle—simplify. Cumbersome entry procedures mean more hassle for entrepreneurs and more corruption, particularly in developing countries Each procedure is a point of contact—an opportunity to extract a bribe. The cost of such systems is the forgone jobs tha “REFORM IS LIKE REPAIRING A CAR WITH THE ENGINE RUNNING – THERE IS NO TIME TO STRATEGIZE.” HOW TO REFORM In the top reforming economies in the past 3 years, nearly 85% of reforms took place in the first 15 months of a new government. The message: for a government recently elected (as in Mexico) or reelected (as in Colombia), the time to push through ambitious reforms is at the start of its term. In the words of one reformer: “Reform is like repairing a car with the engine running—there is no time to strategize.” When the government succeeds in these early reforms, citizens start seeing benefits—more jobs, more resources for health and education. The appetite for further reforms grows. In the countries that move up fastest in doing business ranking - reformers took on simultaneous reforms in several areas at the start of their mandate. But few countries have the opportunity (or feel the pressure) for a reform blitz. Instead, reformers must decide which reforms to tackle first. The 4 steps to successful reform:
El Salvador did all these things. In 2 years it reduced the tie to start a business from 115 days to 26—with no changes to the law (figure 1.4). The reform started in 2003 in the company registry, which had set the goal of becoming the first registry in Latin America to earn an ISO certification. The staff developed time-and-motion studies of all transactions and cut unnecessary steps. Customer surveys ensured timely feedback. In 18 months start-up time dropped to 40 days, and the share of satisfied customers rose from 32% to 87%.  Notable reforms are performed in a variety of ways, and the following cites examples from within the Latin America and Caribbean non-SIDS countries: Argentina stripped bankruptcy judges of jurisdiction over labor lawsuits and exempted such claims from the automatic stay applicable to claims, which are to be continued and 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. Brazil made several amendments to its 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 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. In ‘trading across borders', Brazil has also upgraded their EDI system and reduced importing delays by 2 days. Colombia, the top reformer in the region, has made great strides in easing trade. By extending port operating hours, adopting more selective customs inspections, time for ports and terminal handling activities has been reduced by 3 days. Investor protection was strengthened by a decree requiring increasing disclosure requirements for related-party transactions, and paying taxes is now quicker and the corporate tax rate of 35% is progressively being reduced to 34% in 2007 and 33% in 2008. With the simplification of accounting rules, 188 hours were cut, a reduction of 41%. Costa Rica allowed traders to directly transmit customs declarations electronically and improved the capacity of the customs service’s resulting in reduced cross border trade by 6 days for import and 7 days for export. Dominican Republic has been successful in streamlining procedures; by simplifying the name registration process and introducing online tax registration the time to start a business has been reduced from 72 to 22 days. The Dominican Republic abolished the requirement for consular notarization of import documents. A new property law and the reform of the registry cut property registration from 107 to 60 days. El Salvador established a one-stop shop for importers thereby facilitating the documentation and approval process. | ||||||||||||||||||||
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Guatemala, expedited a number of formalities by making them electronic. By allowing registrars to submit electronic signatures, the time to register property has been reduced from 37 to 30 days. The implementation of a new Electronic Data Interchange (EDI) system for electronic submission of customs declarations and the introduction of risk-based inspection regime decreased the time for exporting procedures one day. With the full implementation of the one stop shop, time for new company registration was cut from 30 to 26 days, and 13 procedures were reduced to 11. Guatemala focused on increasing efficiency across the board, expediting the decision processes for construction, reducing the time from 286 to 235 days, as well as reforming the courts: increasing the number of cases to be decided by justices of peace hereby expanding their small claims courts. Haiti decreased the time to register property from over two years to 405 days by decreasing time to register at the tax authorities. Time to register the sale contract has been reduced from 1-2 years to 6 months to one year (a total decrease of 278 days). A reform program began to reduce the time to register the sale-contract through reorganization, training and employment of interns. Beginning in the summer of 2006, a program was begun to reorganize the department and retrain employees, many of whom were not competent. In addition, about 60 interns were hired from the university and trained, with the promise that if they performed well, they would be contracted as employees. After the initial two month training period, a six-month program commenced to reduce the time to register sale contracts. The transformation was closely supervised and at the end of the period–in which improvements were definitely achieved, thanks to the additional staff and training–the interns that had performed well were hired. Honduras simplified the municipal licensing procedures reducing the time to build a warehouse by 32%, and starting a business from 44 to 21 days. Registering property has also become easier; the creation of time limits on certain procedures has sped up the process from 36 to 24 days. Honduras has began facilitating access to credit by allowing borrowers to access their data and obtain a free credit report once a year. 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. Mexico reduced corporate tax rates from 33% in 2004 to 30% in 2005, to 29% in 2006 and to 28% for 2007 and subsequent years. Mexico also issued a new notary fee schedule which reduced the costs of registering property, from 5.24% to 4.73% of property value Paraguay launched a one-stop-shop linking multiple agencies. The number of procedures to start a business was more than halved, time was reduced from 74 days to 35. Trinidad & Tobago now includes utility companies as providers of information to credit bureaus increasing the credit information index. In addition, t he corporate income tax rate decreased from 30% to 25%. Uruguay reduced corporate income tax and simplified the various contributions made by employers to a single rate. Venezuela however has made doing business more complicated than it already was and has dropped 10 positions to a ranking of 172 in the worldwide country ranking for ease of doing business. Venezuela added further hurdles to cross border trading procedures by requiring traders to obtain permits for each shipment leading to an increase time from 18 to 30 days. Venezuela also increased the number of payments and the total tax rate. Already one of the countries with the most rigid employment regulations, Venezuela extended its prohibition on dismissals of workers earning up to 3 times the minimum wage. The result is a loss of job opportunities: the Venezuelan economy has lost about 850,000 jobs in small businesses since 2002. MAKE IT EASIER FOR ALL BUSINESS Whatever reformers do, they should always ask the question, “Who will benefit the most?” If reforms are seen to benefit only foreign investors, or large investors, or bureaucrats-turned-investors, they reduce the legitimacy of the government.  Author: Raquel B. Tejeda is a native of Mexico who works in the healthcare industry as a traveling private nurse within the Latin countries where she is a keen observer of the political and social systems.
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