A CAFTA-DR SUCCESS STORY: TIME TO START A BUSINESS

UNCLAS SECTION 01 OF 02 TEGUCIGALPA 001154 SIPDIS SIPDIS STATE FOR WHA/CEN ELIA TELLO AND WHA/EPSC LISA MARTILOTTA COMMERCE FOR ITA DESK OFFICER MARK SIEGELMAN E.O.12958: N/A TAGS: ECIN ECON EIND PGOV DR GT CS HO SUBJECT: A CAFTA-DR SUCCESS STORY: TIME TO START A BUSINESS DRAMATICALLY REDUCED; COSTA RICA LAGS 1.(U) SUMMARY. Since CAFTA-DR has been implemented, the number of days required to register and open a business has been reduced dramatically -- and the process made less complex -- throughout the region. The treaty was a motivating or sustaining factor for change in most of the countries, making the simplification of registering and opening a business a CAFTA-DR success story. The only country without reform is Costa Rica, where the treaty has not yet been ratified. A closer look at some of the stories around the region reveals the positive impact a treaty like CAFTA-DR can have on the business climate, and provides a strong reason for the Costa Ricans to ratify the treaty. This cable was coordinated with the Econ Sections of Guatemala City, Santo Domingo, and San Jose. END SUMMARY. GUATEMALA: 1 DAY TO OPEN BUSINESS (DOWN FROM 30 DAYS) 2.(U) According to the 2007 World Bank Doing Business Index (WBDBI), which measures statistics from April 2006, Guatemalan business used to need 30 days to register and begin operations. Efforts to reduce this number actually preceded CAFTA-DR, but the upcoming treaty provided an additional reason for completing the reforms as quickly as possible. According to Emmanuel Seidner, who serves on the Guatemalan Presidential Commission on Competitiveness, the country has reduced the complexity of the process with a new one-stop window ("ventanilla unica") for the registry and opening of a business. This uses a single form and a single bank payment to diminish the time needed to register a business and pay associated costs. Initiated in May 2006 by the Economy Ministry, the system allows payments to be made either in a bank or on-line at http://www.mineco.gob.gt/ventanillaagil/index .html. Per the American Chamber of Commerce in Guatemala, every complete registration is now accepted and a company can begin operations within 24 hours, which has reduced waiting time for beginning business operations by 97 percent. ¶3. (U) According to FUNDES, a small and medium enterprise business association, it used to take about 17 working days to comply with all 191 steps needed just to register a business with the Business Registry, the Tax Administration Superintendent, the Guatemalan Institute of Social Security, the book and machine registration authorities, and the official record book authorities, among others. Now it takes one step not only to register the business, but also to begin operations. According to the 2007 WBDBI it takes an average of 73 days to register a business in Latin America overall, so simplifying the process and reducing the number of days to register and start a business to just one puts them at the head of the pack. From June 2006 when the system started through December 2006, 21,450 businesses have registered, representing a 22.1 percent increase over the June-December 2005 period. HONDURAS: 9 DAYS TO OPEN BUSINESS (DOWN FROM 44 DAYS) 4.(U) According to Amilcar Bulnes, the head of the Tegucigalpa Chamber of Commerce (TCC),there is no doubt that CAFTA was an integral factor in Honduras's decision to simplify the business registration process. "CAFTA-DR is the difference between whether or not an investor chooses to come to Honduras," he stated to EconOff in June 2007. But he indicated that taking advantage of CAFTA seemed doubtful after a 2004 PriceWaterhouseCoopers study identified a six month delay to register a business through a "less than transparent" process. ¶5. (U) In preparation for ratification of the treaty in April 2006, the previous administration of President Ricardo Maduro created the Technical Secretariat of the Committee for the Simplification of Business Administration (CSAE) to administer a new National Competitiveness Program in February 2005. At the time, the Supreme Court had responsibility for the National Business Registry, which unnecessarily complicated the process. With executive branch support, the Supreme Court voted to hand responsibility for the Registry to the TCC and 23 Property Institutes located throughout the country. Bulnes notes that the TCC is just the fourth Chamber of Commerce in Latin America to be given this important responsibility from the government. ¶6. (U) According to FIDE, a Honduran business organization, the time needed to register a business has dropped 96 per cent, from 25 days in early 2005 to just one-two days in early 2007. Although the TCC still registers businesses by hand, within two months a delegation from the Bogota Chamber of Commerce is arriving to implement software the Colombians have developed to automate the system. This is expected to result in even greater improvements. While registering a business still forms just one of nine steps needed to actually open a business, the WBDBI noted that the time to complete the process was reduced by 29 percent (from 62 to 44 days) from 2005-2006, the greatest progress of any Central American country. CSAE and FIDE expect that this year's report will show that the time TEGUCIGALP 00001154 002 OF 002 has been reduced even further, from 44 to just nine days, due to further reductions in waiting time for operating permits. DR: 20 DAYS TO OPEN BUSINESS (DOWN FROM 73 DAYS) 7.(U) In November 2004 USAID, with its contracting partner Chemonics International, initiated a study measuring the cost and time required for opening a business in the Dominican Republic. The conclusions, presented in March of 2005, revealed weaknesses concerning the lack of communication between institutions and a generally convoluted process to register a business. In response, the National Competitiveness Council (CNC) launched an initiative to reduce the number of days it takes to start a business in the country and to eliminate bureaucratic inefficiencies. ¶8. (U) The results have been impressive. The 2007 WBDBI reported that it took 73 days to start a business in the Dominican Republic in 2006. Laura del Castillo, the Business Climate Improvement Specialist at the CNC, says that the number of days has been reduced to 20 and the number of steps required has been reduced from 10 to seven. She indicated that the success was due to the concerted efforts and reforms of three institutions: the National Office of Industrial Property (ONAPI),the Internal Revenue Service (DGII), and the local chambers of commerce (in particular, the Santo Domingo Chamber of Commerce). These institutions used primarily technological solutions to implement reforms, with the most significant reduction achieved by ONAPI. It reduced the number of days to obtain a name registry certificate from 45 to five. ¶9. (U) In June 2006 -- with implementation of CAFTA-DR only nine months away -- President Leonel Fernndez issued a presidential decree creating a committee to integrate the multiple institutions that work with the establishment of businesses. This committee proposed a pilot plan program known, as in Guatemala, as the "ventanilla unica virtual." This would secure, simplify and centralize the documents and processes required for the creation and formalization of a business. This "ventanilla" should further reduce the time it takes to start a business by allowing the processes at the three institutions mentioned above to be done simultaneously via an integrated web-based registration system. The pilot program will launch in August 2007 for the Santo Domingo region and should be expanded to other major commercial centers within six months. COSTA RICA: 77 DAYS TO OPEN BUSINESS (NO CHANGE) 10.(U) The story in Costa Rica, the only Central American country yet to have ratified CAFTA-DR, is very different. The Costa Rica business climate has not improved for several years. In fact, Costa Rica was one of only four countries in Latin America whose ranking worsened in the WBDBI between 2005 and 2006, dropping to 22 out of 33 countries in the Americas. While expectations remain that the new laws and regulations associated with entering CAFTA-DR into force in Costa Rica could significantly improve the investment climate, the current reality is that according to the WBDBI it takes an average of 77 days to start a business after completing 11 different procedures. This number has not changed in the last three years. 11.(U) COMMENT. The efforts in the Dominican Republic, Guatemala, and Honduras to reduce business registration and opening time clearly show that it is possible to make improvements if the right incentives are in place. The impending launches of CAFTA-DR gave countries not only a reason to try to become more competitive, or to sustain planned reforms, but also -- as the surveys carried out in the Dominican Republic and Honduras show -- to seek out detailed information about where their weaknesses were located. The result is that these countries have used the reform of the business opening process to their advantage and continue to do so, while Costa Rica has remained stagnant and fallen in the WBDBI ratings. Ratifying CAFTA-DR may represent a strong motivation for them to catch up with their neighbors. END COMMENT. FORD