Raul Larios

Want to do Business in Latin America?

Latin America and Caribbean Region

Proceed carefully, very carefully…Recent allegations claiming that Walmart was involved in a $24 million bribery and corruption scheme in Mexico, tells you (among other things) that doing business in Latin America is tricky.  On the one hand, the potential for profits is enormous thanks to a rising middle class that exceeds 50% of the population in some of the larger economies.  On the other hand, the culture in Latin America is generally bureaucratic, slow and it often wants, expects and even demands bribes if you want your projects to be moved along.

I generalize, of course, which is not entirely fair.  After all, the Latin America and Caribbean region (LAC) is very diverse, comprised of over 50 countries and territories with an estimated population of 640 million — roughly twice the 313 million in the United States.   Although Spanish is the predominant language, Portuguese, French, English and Dutch are spoken in several countries.  (For purposes of this blog series on doing business in Latin America, I’ll be focusing my comments on the Spanish-speaking region of LAC).

Part 1 (of a series) – Local laws, rules and regulations vary from country to country, of course, but they are all based on the same antiquated system inherited from imperial Spain over 500 years ago.  Some countries have come a long way in modernizing their business regulations; others still seem to operate under the belief that King Felipe II is alive and ruling his colonies from Madrid.

The good news, according to the World Bank, is that 3 LAC nations have surpassed the American territory of Puerto Rico in ease of doing business: Chile, Peru and Colombia.  One of them, Colombia, has earned the title of “top reformer” thanks to their most recent improvements — catapulting it to position #42 (out of 183 countries) in World Bank “Ease of Doing Business” rankings.

One of the reasons for this spectacular rise is how easy, and much less expensive, it is to incorporate a local subsidiary in Colombia.  In just 14 business days (vs. 54 in the rest of the LAC region) you can obtain your “certificate of existence,” register with the National Taxing Authority (DIAN) and the other required government agencies (ISS, etc.), as well as enlist your local employees for public health coverage and severance.

Another reason for Colombia’s high rankings is the new streamlined process for cases of insolvency.  The average cost of processing a bankruptcy has dropped to only 1% of the estate value (vs. 16% in the rest of the LAC region) and, combined with other improvements, the average recovery rate has ballooned to about 83 cents on the dollar (vs. only 31 cents in LAC).

Perhaps the greatest reform of all (implemented in several stages from 1995 through 2006) was the privatization of construction permitting.  It used to take about 3 years (3 years!!) to obtain a building permit in the capital city of Bogota.  Imagine trying to arrange financing for a major construction project when just the initial permit would take 3 years?!  It would drive my clients nuts.  The only way to get your projects approved on a timely basis was with the help from political connections and friends on the inside — you know, the type of “friends” who helped Walmart in Mexico.  Not surprisingly, many of those shenanigans disappeared when Colombia turned over the permitting process to private “curadores urbanos” (urban curators), who get the permitting job done in about 2 months.  From 3 years to 2 months — WOW!  It’s just amazing how Bogota’s skyline has changed since those frustrating days.

When you combine the above reforms with the significant security improvements and the recently approved free trade agreement between Colombia and the United States, the future for American business in Colombia is bright indeed.

What have been some of YOUR business experiences in Colombia?

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May 1, 2012 - Posted by | New York | ,

2 Comments »

  1. Thanks for your perspective. I live and have a business in Mexico dealing with varying levels of corruption and high levels of bureaucracy every day. If you know what you are doing, and have trustworthy contacts, your investment will run a lot more smoothly. I look forward to reading more. www. audreyinternational.com

    Comment by Audrey | December 11, 2012 | Reply

    • Gracias, Audrey!!

      Your comments are especially gratifying coming from a successful property manager, as yourself, who can proudly claim that “you know what you are doing” in Mexico. After all, doing business anywhere in Latin America is tough, so when I meet someone who is making it, I’m hopeful that they will share their experiences with my readers. With your permission, I would like to re-post some of your website articles in my blog.

      Muchos saludos,

      Raul

      Comment by Raul Larios | December 13, 2012 | Reply


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