gE Blog Series: Latin America Outlook Part 2 - Latin America's Regulatory Environment
Regulatory environments vary significantly from country to country and have a dramatic impact on business, both domestic and international. In the Doing Business 2013 report, senior managers reported that they spend 11% of their time dealing with government regulations and more than 50% of them feel that regulations are inconsistent. The Doing Business Report is a study that rates the attractiveness of a country based on its legal institutions and regulatory environment. Latin America is making progress according to the report, but no country from the region has been able to break into the list’s top 30. What does this mean for Latin America’s role in international business?
The report notes, and this may come as a surprise, that lack of regulation does not directly correlate into a countries attractiveness for investment. Countries that are more transparent and communicate their policies the best tend to be the most attractive for businesses. For example, a study was done of provinces in Brazil. The municipalities that allowed greater public access to their budgets tend to have less corruption. This may seem obvious but this is a very important indicator to attract international business. About 19% of companies have to pay bribes in order to secure operating license or receive electricity. Mexico has experienced this problem in a very public way when it was revealed that Wal-Mart was paying bribes in order to conduct business. This can be a plague for countries trying to entice outside investment but with the exception of a handful of countries in Latin America the right steps are being taken to make these incident farther and few in-between.
Colombia was noted in the report for having “narrowed the regulatory gap the most since 2005.” Progress which is reflected by all of the major Latin American economies – save Venezuela who is the only country from the region to move down the rankings overall. Something that may come as a slight shock is quite low ranking of Brazil. With so much attention on the international attractiveness of the country it would be assumed that their legal structure would be advanced far beyond its neighbors. While they to continue to make improvements they do so at a slower pace than others in the region. This should actually be somewhat comforting to Brazil though as it appears they have achieved much despite being its own enemy in this case. If the governments of Brazil – national and local – can improve their regulatory environment the increased business interest from those around the globe would increase significantly.
While Latin America is certainly not homogenous and each country faces its own specific challenges it would appear that the region as a whole is moving in the right direction. The continued momentum in that direction is good for all the players involved.