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Compare, Compete, CooperateHow Mexican cities and states used SNDB to improve commercial regulation

http://subnational.doingbusiness.org

Marialisa MottaMierta Capaul

Luis Aldo Sanchez-Ortega

7 June 2010

No need to go outside Mexico for good practices

Indicator Best performing city Value Global rank

Starting a business : procedures Nuevo León, Sinalca 7 55

Starting a business : days Coahuila, Guanajuato, Puebla 12 days 34

Starting a business : cost Campeche 7.4% GNI p.c. 54

Construction permits : procedures Aguascalientes, Quintana Rao 10 8

Construction permits : time Aguascalientes 41 days 5

Construction permits : cost Aguascalientes 24.7% GNI p.c. 26

Registering property : procedures Baja California, Hidalgo 4 24

Registering property : time Coahuila, Colima 15 days 28

Registering property : cost Aguascalientes 0.8% property value 23

Enforcing contracts : proceduresCoahuila, Colima, Durango, Jalisco, Nayaritt, Puebla, Quintana Rao, Sonora, Zacatecas

37 71

Enforcing contracts : time Zacatecas 248 13

Enforcing contracts : cost Mihoacán 19.5% claim value 46

► In Doing Business 2009, Mexico was ranked 56th out of 181 economies. If it were to adopt all best practices present in the country, it would rank 29th, a 27 position drop.

Replicating what others do well makes a difference

► With almost identical federal regulations, mayors and governors have difficulty explaining why it takes longer or costs more to start a business or registering property in their city or state versus their neighbors.

Best practice Guanajuato : 2 days

Best practice Guanajuato : 3 days

7 days

7 days

33 days

53 days

12 days

Best practice Guanajuato : 0 days

10 days

► Colima could make stating a business easier by adopting the best practices in Mexico

Charting a new course by working together

► “Governments disagreed with many aspects of the Subnational Doing Business indicators, but now their actions were focused on either correcting errors or re-engineering processes that would either assimilate or surpass good practices in the indicators measured by the Subnational Doing Business report”.

Daniel Bautista, Regulatory Reform Unit of Morelos

► “After the first Doing Business in Mexico was released in 2005: Discussions were focused on improving business regulations rather than philosophical debates”

Hugo Gama from the Regulatory Improvement Commission of Michoacán

The Doing Business in Mexico reports became a tool to overcome the culture of confrontation

Policy recommendations guide reforms

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► 28 of 31 states made it easier to start a business in Mexico in 2007-09

Average time to start a business fell from 36 to 24 days

From worst performer to best reformer: The case of Queretaro

► Universities

► Municipality

► State and federal representatives

► Chambers of commerce

► Business leaders

► Notary associations

In 2006, Querétaro convened working groups with wide stakeholder representation to propose solutions for business regulation reforms around the Doing Business agenda

From worst performer to best reformer: The case of Queretaro

0

5

10

15

20

25

30

35

40

451. Obtain a non-encumbrance certificate2. Obtain certificate or proof of payment of water rates3. Obtain a certificate or proof of land taxes payment4. Obtain property valuation of the real estate5. The notary prepares and signs the public deed6. Report the transfer of title to the District Cadastre7. Register the public deed in the Public Property Registry

Source: Doing Business database

2005 2006 No changes

District Government 82%

Provincial Gov.18%

3 2

30

7

1 1

8

4

The pace of reform is accelerating

► Reforms related to business entry are among the most popular in Mexican states and municipalities.

► Between 2007 and 2009, 28 of 31 states made it easier to start a business.

75%

9 reformers

90%

28 reformers

Number of states

12

31

2005 - 2007 2007 - 2009

reformers Non reformers

Lessons learned

Lesson 1: It’s all about commitment!

► Commitment is the key to regulatory reform. Aguascalientes,

Guanajuato and Puebla are good examples of how long-term

commitment towards reform can lead to policy innovation in property

registration and reduce the time and costs of business entry.

Lesson 2: Have a credible source of

information

► It is critical to have a neutral third party to move from

confrontation to cooperation. The objectivity of the Subnational

Doing Business benchmarking allowed state governments to tackle

specific reform areas.

Lessons learned

Lesson 3: Focus, focus, focus

► In order to increase competitiveness, state governments

need to design comprehensive, yet focused reform

strategies. Focus is essential, since governments

lack the capacity to fix all problems at once. Focus is

one of the most important lessons that can be drawn from

the reforms in Mexico.

Lesson 4: Build stakeholder engagement

► Business regulation reforms require state governments

to lead an intense but arm’s-length relationship with

the private sector.

-OECD

-Europe & Central Asia-South Asia-Middle East & North Africa

-East Asia & Pacific-Sub-saharan Africa -Latin America & Caribbean

San Luis Potosí 22 19

Nuevo León 26 24

Querétaro 33 19

Puebla 7 42

Mexico City 31 27

Coahuila 11 28

Jalisco 11 28

Yucatán 9 38

Chihuahua 6 29

Drop in

time to start a business

Aguascalientes 20 12

Guanajuato 17 12

 State Days to start a

business

2006

20052006

200520052006200620062007

Doing Business in México has generated reforms in starting a business at the 3 level of governments

-OECD

Coahuila 16 12

State

Drop intime to starta business

Days tostart a

business2008

2008

Puebla 30 12

Guanajuato - 12

Aguascalientes -1 13

Michoacán 5 14

Morelos 34 16

-Eastern Europe & Central Asia

-Middle East & North Africa

Nayarit 21 27Nuevo León 5 19San Luis Potosí - 19Querétaro 3 16

State

Drop intime to starta business

Days tostart a

business2008

Sinaloa 19 16Chiapas 17 17Chihuahua 12 17Campeche 14 18Baja California Sur 15 19Tabasco 15 20Yucatán 16 22Tamaulipas 5 24Zacatecas 7 24Durango 10 26Hidalgo 14 26Sonora 8 26

-South Asia-East Asia & Pacific-Sub-saharan Africa -Latin America & Caribbean

State

Drop intime to starta business

Days tostart a

business2008

Distrito Federal -1 28

20082009

Baja California 9 29Estado de México 15 30Tlaxcala 11 31Jalisco 7 32

Veracruz 15 31Oaxaca 13 33Guerrero 14 40Quintana Roo 19 50Colima 9 57

… but it is not enough

Lessons learned locally guide national reforms in Mexico

► SNDB leverages TA provided by IFC to Mexico City government

► Acts as a bridge between different levels of governments

► Provides advice on how to implement electronic platform for company registration

► Recommends cutting duplicated requirements—registration with statistical office

REFORM RESULTS

► Fewer procedures (from 9 to 8)

► Less time (from 28 to 13 days)

► Improvement in ranking (from 55 to 51)

Rwanda : a top reformer

RESULTS

Ranked 67 out of 183 countries (up from 143 in 2009).

Key impacts include:

Newly registered companies by month have doubled to 343 in June 2009

time to import reduced by 37% and time to export by 10%, leading to significant cost savings for firms.

GIPB 2009 Report recorded Rwanda as one of the top 25 improvers worldwide

SUPPORTED REFORMS

Reform memo and reform action plan for five DB indicators

► Business Entry: Laws and regulations changed, software for business registration, officials of commercial registry trained

► Trade Logistics: Interagency cooperation improved, process rationalized, electronic systems, risk based inspections

► Business Taxation: Process mapping at tax authority to improve efficiency, independent appeals mechanism developed

► Business Operations: Streamlined eight priority licenses

► Inv. Facilitation: Institutional strengthening for investment facilitation & aftercare; developed information tools to track investment proposals

Concrete results : Rwanda entry reform

► Number of newly registered firms up from 184 to 343 pre-post reform.► Entry Literature: 4-5% of the total increase in the number of firms and 2.8% of increased employment associated to entry reforms.

Why business regulation reform matters

► Two microeconomic studies evaluate the impact of a reduction of registration procedures from 8 on average to less then 3 in total, through the introduction of One-Stop Shops and the elimination of federally required procedures (Bruhn, 2007 and Kaplan, 2007). Results:

Increase in the number of new firms of about 5% Increase in employment between 2.8 and 7%

► One microeconomic study measures the impact of the introduction of One-Stop Shops in 6 cities (Cardenas and Rozo, 2007). Results:

Increase of 5.2% in the number of new firms

► One microeconomic study evaluate the impact of the elimination of License Raj in 16 states over 64 industries (Aghion et al., 2005). Results:

Increase of 6% in the number of new firms

Easier business entry means more new firms: evidence from business registration reforms

MEXICO

COLOMBIA

INDIA

Mexico : Ranking SNDB 2006