Monday, November 05, 2007

Doing Business in El Salvador

The Doing Business Project is an exercise of the World Bank to measure the barriers to doing business in a country. The project starts from the assumption that countries which lower barriers to the establishment of businesses and which allow business flexibility are more likely to see economic development which can advance prosperity and reduce unemployment and poverty in a country.

The 2008 results are now available at the Doing Business Project website. El Salvador receives an overall ranking of 69 out of 178 nations reviewed. The weakest rankings for El Salvador came in the area of government regulation and bureaucracy. For starting a business, El Salvador ranked 130th and for dealing with government licenses, the country ranked 121st. See every metric for El Salvador in this print report.

Unsurprisingly from the World Bank, there is a pro-business, laissez faire, bias to this report. As an example, protections for workers' rights generally result in worse rankings for a country. Yet it is worth remembering that high levels of bureaucracy and corruption are most likely to impede the formation of small businesses -- the businesses most likely to be formed by the poor and lower middle class and the businesses most likely to hire the poor. Big business can absorb these costs, but the small business may never be opened or may operate only in the informal economy where there is no regulation or worker protection. An efficient government can safeguard worker's rights, consumers and the environment and still minimize unnecessary costs on business. El Salvador has a long way to go on all those fronts.

Update:

El Faro reports that 2 weeks after the Doing Business Project report was released, business interests and the government are moving forward to reduce the minimum capital required to start a business and the number of licenses the new entrepreneur must acquire. That's a step in the right direction.

12 comments:

Anonymous said...

Tim, thank you for the well-thought out analysis.

El Salvador does have a long way to go, particularly in the areas you indicated. That said, I believe that it is manageable in a country this small. Salvadoran government, take note...

The international media already works overtime bringing out the negative in this tiny country (again and again). Salvadorans, why not start with a positive outlook in life, working together towards a better future?

Yes, let's start by enabling the poor to believe in themselves--with faith, education and challenges.

"Give a man a fish and he will eat for a day. Teach a man how to fish, and he will feed for life," right?

At the same time, let's work on squeezing out bigotry and antiquated idealism, both of which are paralyzing.

Finally, all economics aside, the biggest challenge lies in countering the negative image that is often brought forth by wartime mentality.

kike78 said...

"Teach a man how to fish, and he will feed for life," right?
Great thought, and a well written piece my friend, too bad is very far from the reality we currently have. Problem is nobody is teaching... Not enough public schools. And about the faith issue (Catholic Religion)--- Maybe if we had as many schools as cathedrals and churches the Salvi society would be different. Enough about fairytale stories and perverted priests. Seriously... My problem is not with God as much as my despite against the Catholic establishment of hipocrites and their mass manipulative machinists. Moving on but related; Recently Prensa Grafica presented "Las Diez maravillas de El Salvador. Only 4 non-religious related pieces made it to the list. Reloj de Flores y el arte de Gabriela Mistral and 1 palacio y 1 Teatro. I'm sorry if I got a name wrong but you should see where I'm going with this. 6 out of the Maravillas are Cathedrals ??? I really think this is one of the biggest reasons why Salvadoreans are so closed minded and stubborn. Their religious faith does not allow them to see any other point of view that is not within their view. Trust me, I've been overthere and have engaged into some heated debates just because I did not share their Catholic way of life. Thanks to the above mentioned religious influence most Salvi people have no respect for other cultures and faiths, they go out of their way to ridicule them and in a lot of cases outcast them just like they tried to do with me... I agree with you ninety percent, I will give you this - Faith is a very powerful thing and in many cases the main reason of extraordinary achievements...
I would urge the people of El Salvador to please put the religious vision aside and try to separate it from where we're at and our real problems.
I tell you what I think the main predicament is and why our overall economy does not prosper. This is offcourse related to the economic growth of small and medium businesses. The biggest one I can think of right now has to do with a very popular game. Have you ever played MONOPOLY ?. Well... that's what's happening in El Salvador. Too many special interests with our government and private industry. Many things need to change . Progress in the fields solutions I present below moves as fast as a turtle around a pond. In my opinion here's the priority in the order of urgency.

1. Corruption needs a mano dura style of fighting.
2. AntiTrust Laws need to be regulated.
3.Quality Public education. Promote and fund sports and youth activities.
4. Roads and highways need to be all over the country not only in or around San Salvador. This will promote Commerce all over the country and a key factor in the development.
5. Be agressive and approve death sentences for any murders and violent robberies --- ManoDura times 2. Derechos humanos advocates please save it, this is to protect the right to be alive without cualquier marero wanting to take it from you and to get rid of the bad rep that we have around the world.

There are many more but I figure 5 are good to start off.

How can we get the money to do this ???
1. Tax the rich much more than the middle and lower classes. They have stolen and oppressed enough to afford it. Also make it mandatory for them to have community related foundations. Trust me they can afford it, I should know I grew up with them. 2. Add a tax of 5 to 10 percent a las remesas that we send from here to there. That enough would give us the money to make a societal transformation by building more schools and the funding of afterschool programs. Also, how about making it a longer school day. Kids only go to school for 5 hours ???

Everybody want things done but few have plans and feel free to speak their minds. Could this be related to the 12 years of the bloody civil war we had ???????????????????????????

"Kike"

Anonymous said...

Though they were not my own words, I guess you could say I am the "fish" guy :)

Kike, a critic with solutions, I love it!

Some misconceptions:

Although I will never be ashamed of being Catholic, I know the Catholic history and those who do are less likely to repeat it –again back to education. That said, I was referring to Faith as a state of mind that brings hope. All legitimate, peaceful religions can play a positive role in El Salvador. In fact, for the most part, that is already happening throughout. In fact, El Salvador's tolerance for non-catholics has had an unprecedented acceleration in recent years.

I too understand the mindset of this debilitating minority that is the rich. Yet, there is no reason why part of the plan is to work with them in a common goal. After all, everyone wants buying customers.

You said that, “Roads and highways need to be all over the country not only in or around San Salvador. “ I agree and this is already happening. El Salvador’s infrastructure is, by Central American standards, one of the best in the region --and getting better. The upcoming North road construction using Millennium funds is a good example.

Of course, without education, few of the poor can see the potential gain in economics and well-being. Their views are from the stomach, which is understandable. It’s never quick enough, but one thing is for sure: no good ever comes out of hatred and criticism alone.

We agree on everything else.

The "fish" guy.

HODAD26 said...

El Salvador is a pain in the ass with the government trying to do business
hey, its latinos!
NOT Asians, you cannot expect better service from any govt. organization, etc. etc etc
not a lick of common sense in Latin America, just how it is
all about education

as the person that had the very first corporation chartered in ES in 1994 with the new laws, basically a free transfer of a USA Corporation
I can write a book, but one must always have a book or something to read, lol as the lines and waits are long

but as we say, 'vale la pena'
it is worth it,
I will see next month, with MAG and CENDEPESCA and CAFTA regs
also aduanas sucks and all are corrupt, just have to know how to play the game

however with some Congressional clout from my Carolina reps , this should be resolved, the permits,licenses and permissions granted more expediently
better be next day
and i will also say, the Embassies and the staff are worthless and just waiting for their government pensions, like 99% of all of them
oh well
press on regardless
as all will be resolved
and positive attitude and actions prevail

Tim said...

So how do you really feel about it Hodad26? :-)

Anonymous said...

Remember, ARENA has had control of the Office of the President for all this time. The people of El Salvador voted their canditate into the office. Now, why would anyone expect anything different than the situation that we have now? You can teach a man to fish, but he has no right to go fishing.Being Catholic does not automatically mean blind acceptance of the Roman Catholic church, which is run by a bunch of men who run around in colorful dresses in Rome. The government of ES is under the control of bankers in New York. Neither group gives a damn about the people of ES, just how much money they can drain out of the country.

HODAD26 said...

how do I feel?
for me, El salvador people are the biggest hearted in the world
true, hassles abound, but worth any any of it

I will continue next month with licenses and permits

when i put my factory in Pedregal in 1994, it was some hassle, mainly with customs,
but things can only get better, not worst in some regards,
and the folks there need work, and incentives, that which the rich folk never gave
Te Amo El Salvador
I have to follow God's wishes[true I am Buddhist, same God, different path, and we all stray, few were close to what could be conceived as perfect] and where i need to be to help the most is Guanacolandia, lol
press on Irregardless

Anonymous said...

Kike for President! Yessirrie, my friend... you'd be a winning card.

Know what would be another sound policy to gather fundings? Abolish the freaking army, that is loads and loads of moolah right there that could be invested in schools, public safety, etc., but the most important thing of this all, is that we DO APPLY a MANO DURA TO ALL CORRUPTION CASES, no amnesty to past offenders either, cases like INSEPRO's should be reopened until the cash that was stolen is recovered, because in the end it doesn't matter how much cash you drop into the barrel if the bottom is missing. THAT is what is happening here, that is what has happened here with the loads of USA "aid" during the time of the war, many new rich thanks to said aid.

Step #1 should definately be the top priority, without it nothing else works. However, it does make me wonder how long would a president that carries out said policy would last... if you know what I mean.

Another good idea, imo, would to reorganize all those farmers who engage on subsistence farming to form cooperatives, teach them new agricultural techniques, diversify their crops, etc., of course we would have to take into account the land on which they farm, but this is a general idea.

However, another critical thing to do is definately increasing the education of the country. Right now we are famous for being "hard-working", nonetheless we don't have spades of people capable of doing high-skilled labour (I don't think you'll ever see Intel installing a factory here as we currently are). So, education is pivotal to restructure our society, because there is loads of stuff that needs to be diminished, like you imply, for example, about the religion's influence within society. There should be more liberal policies aimed towards family planning, contraception, etc. Think about it, what use is it for El Salvador to have some of the region's best infrastructure if we do not count with people capable enough to exploit it? We need a railway, we need better urban planning (no more construction companies sprawling all about like crazy, no more centralized development, we need to spread out definately)

All in all, though, imo there is no reason why El Salvador couldn't be a Singapur, we are definately small, we should be easier to manage, however we don't reach Costa Rican standards precisely because we have been mismanagement, tons of corruption (overblown concesiones, hidden expenses, useless bureacracies... mainly the army!, escalating government salaries, rampant nepotism, monopolies).

With you at the helm, and me as an asesor, by the year 2020 El Salvador could be entirely Wi-Fi abled! Hehehe... (to reach such a peak of technological advacenemnt, imo, would mean that other issues have been successfully handled)

However, I must say that I don't agree with one aspect of your criticism. Particularly the death penalty, to me, crime is symbol of a sick society, and crime here is particularly intense because of a violent past, so what I belive needs to be done is address the issues that first allows crime to proliferate, but even those said criminals can come in handy into a country's work force, I believe the key with them would be to organize them, teach them a trade, from urban landscaping(I love a well-done graffiti), to auto-mechanic, to construction workers to anything else. Of course, this means that we would have to deal with the fact that we are the most densely populated country in the region, but to all their place. Is the death penalty really necessary? As I understand it has worked wonders in Singapur to keep drugs at bay, but how would let us say the opposite work?

I've been wanting to research on Timothy Leary, but unfortunately not counted with a lot of sources; suffice to say that the little I know of him serves as basis for my next proposal. But what if we legalize certain drugs, we offer a place for those individuals who wish to use said drugs a place where they can do so under supervision (doses, environment, psychological profile, etc.), wouldn't that mean an added revenue, too? Think about the tourism, in the future I could imagine thousands of gringos comming to El Salvador to smoke some pot in one of our anthros.

The crucial aspect of everything is, eliminating corruption, corruption is a gangrene that affects the effectiveness of the whole system. Increase investment in education... All this talk, though, however ideal it sounds, makes me stare into our reality and conclude that it would be definately a hard task to accomplish. It is a real pity that ARENA's terms have been plagued with corruption and that they've lost the golden opportunity of investing their efforts in promoting education, national welfare, public safety just as much as they vested efforts in liberalizing the economy (key aspect to their monopolization tactics). IMO, Cristiani should've set the precedent by the end of his term and abolished the army, that would've been more than 10 years of 50-100 million dollars a year invested elsewhere.


This is a long post, and because of how late it is, I don't expect any response. But here is a question for you people. In a country so small, what is the use of the army when: Guatemala, Honduras have a bigger and better prepared army, there are a series of mutual-protection treaties that in one way or another protect us from an outside invasion, and as critical as I am of USA foreign policy, being in the immediate sphere of influence of the world's most belic nation should have its uses. Mainly, who'd come an attack us? Ferrer appealed to USA when Somoza intervened into Costa Rica, so could we. Natural disaster response, isn't it better to invest money for a more communal/local response? Don't we have firemen, the different safety corps like the red cross out there? They could use more funding. Fighting a highly equipped, and rich drug cartel? As I understand El Salvador is a perfect bridge for said trade, but drug usage here isn't at an alarming rate. We don't have zones entirely controlled by the cartels, so the army isn't needed, and even so, if we had an adequetaly trained police force trained in urban assault and whatever is needed, shouldn't they be enough to handle said problems? Of course, investing on good investigation would be even better...

Alright. I'm done with the ramble.

Anonymous said...

Rambler,

If you and Kike are not the same guy, I think you should consider politics yourself ;)

>>couldn't that mean an added revenue, too? Think about the tourism, in the future I could imagine thousands of gringos comming to El Salvador to smoke some pot in one of our anthros.

All other issues aside, these aren’t the gringos you want, even from an economic point of view. You started off so well. What happened, practicing what you preach?

I will cut you some slack, because most of what you said was right on.
Couldn't agree more on the army.

In fact, give me the same number of technology graduates and I PROMISE you I can give India a real run for its outsourcing money on our own timezone. I’m in the biz, I KNOW ;)

I think a change in politics is about due in El Salvador. I can see how a leader who’s not affiliated with the right or the left would be a step in the right direction -perhaps a Libertarian hybrid (no legal drugs, please), or how does a PDC come back sound?

You see, there is no point in trying to make the rich poor, because at the end of the day, it’s really about making the poor have a better quality of life; stop the bleeding, then to the stomach and end at their brains.

Sorry, but spiritually (regardless of religion) is what separates us from the rest of the animals, and I challenge anyone to convince that a short-ten moral rules are bad in a society.

Everything else is rhetoric and Bull crap.

The fish guy.

Anonymous said...

I can tell that most of you are not salvadoreans!!!! I am a salvadorean. I live in Europe now and of course, not of most of you said, i am not catholic and i have not been a catholic all my life. In my country, there are two words... and for talking about my country, you must know about the two words.. the ones who have and the ones who dont have. as simple as that.
i was born there, studied there, and we are not a bunch of indians as many of you tryed to make everybody believe. If you are not a salvadorean or have not lived there for long time, quit making analysis of my country!! quit playing smart pretending you know all about El SAlvador. I read a lot about those "experts" in my country .. people who have been there for a couple of months... com on.. it is not that simple!!!!! my country is not a MONOPOLY game.. what a simplistic way to see it!!! but what can i say!!! some of you still believe in death penalty!! ... hope you enjoy a couple of good "pupusas" when you go there but please, stop playing Christ!!!! for God's sake!!!

Dr Aliu Shadira said...

$$$ URGENT LOAN OFFER WITH LOW INTEREST RATE APPLY NOW $$$
Do you need Loan to pay off your debt and start a new life? You have come to the right place were you can get FUNDED at a very low interest rate. Interested people/company should please contact us via email for more details.

Full name:
Date of birth (yyyy-mm-dd):
Gender:
Marital status:
Amount Needed:
Duration:
Address:
City:
State/province:
Zip/postal code:
Country:
Phone number:
Monthly Income:
Occupation:

E-mail: shadiraaliuloancompany1@gmail.com

neto me said...

Isn't there a really fast way of fixing a country the size of LA COUNTY? It makes no sense to me why el Salvador is so behind in economy. The people are smart and industrious