95203 Doing Business in Central America and the Dominican Republic 2015 Overview T he strengthening of sustained Despite these achievements, foreign MAIN FINDINGS and inclusive economic growth trade grew less in Central America providing opportunities for all than in other regions3. Recent World ƒƒ There are substantial variations in busi- and reducing inequality is a key to Bank studies indicate that trade bar- ness regulations and their implementa- achieving shared prosperity in Central riers include, among other factors, tion across countries in the region, and also among cities within the same America and the Dominican Republic. the high costs of internal transport, country. However, the countries in this re- the lack of quality infrastructure, and gion1—except for Panama and Costa bottlenecks at terrestrial borders4. ƒƒ In each country there are cities with good Rica—have not yet attained growth Other studies reveal that the areas practices in at least one of the areas driven by high productivity. This is having the greatest impact on trade measured, while no city excels in all areas. why many countries are including costs and volumes are information ƒƒ It is easier to do business in Panama, competitiveness improvement as a availability, process improvement San José de Costa Rica and Guatemala key goal in their development plans: through the use of online tools, and City. In Guatemala, Honduras and the Costa Rica in its National Development document simplification and stream- Dominican Republic, there are broad Plan (2011-2014), Guatemala in its lining5. Indeed, entrepreneurs in the differences among cities. In El Salvador and Nicaragua, the performance is more National Competitiveness Agenda region spend more than half of the homogeneous. (2012-2021), Nicaragua in its total time for exporting and import- National Human Development Plan ing in preparing the necessary docu- ƒƒ Best performing countries in the start- (2012-2016) and the Dominican ments. Making foreign trade easier is ing a business area have implemented Republic in its National Development especially important because the time one-stop shops and online systems but Strategy (2010-2030). For their part, their capitals benefit the most from and cost necessary for importing and them. In general, medium-sized cities El Salvador and Honduras have imple- exporting affect international trade perform better in dealing with con- mented work groups along the same volumes and export diversification. struction permits, the area with more lines. subnational differences. In registering The strengthening of the business property, variations mainly occur due to The relatively small size of economies environment is a key action within national policies, such as the quality of in Central America makes regional these countries’ competitiveness cadastral information or the efficiency and international integration all the and productivity agenda. If laws and of property registries. more important. Over the past de- regulations are clear, accessible and ƒƒ In trading across borders, the region cades, the region reduced its tariffs, transparent, while at the same time is divided into 2 groups: Panama, the made progress in regional integration they are enforceable before a court Dominican Republic and Costa Rica are and signed free trade agreements of justice if necessary, entrepreneurs among the top 50 economies on the with the United States and the will have more time to devote to ease of trading across borders, while European Union. Exports increased productive activities and will feel El Salvador, Guatemala, Honduras and more than 50% between 2008 and more confident to run the risk of do- Nicaragua require more time and docu- 2012, and intraregional trade grew ing business with people they don’t ments to import and export. faster than trade outside the region. know, which may contribute to the ƒƒ Peer to peer learning, with the support Central America is currently the sec- expansion of their client and supplier of regional bodies, would promote the ond export market for the majority of network, thereby making their busi- convergence towards best practices in the countries in the region2. ness grow. the region. 2 DOING BUSINESS IN CENTRAL AMERICA AND THE DOMINICAN REPUBLIC 2015 El Salvador, Guatemala, Honduras, A comparison of general rankings WHAT DOES DOING Nicaragua and the Dominican Republic shows that Panama City and San BUSINESS IN CENTRAL (figure 1.1)7. José de Costa Rica are ranked in the AMERICA AND THE top positions followed by Guatemala DOMINICAN REPUBLIC 2015 The study covers 3 areas of business City. In Guatemala, differences MEASURE? regulation: starting a business, deal- across cities are outstanding, with ing with construction permits and 18 positions separating the capital Doing Business measures business registering property. The results of and Escuintla, the city with the low- regulations that affect domestic small and medium-size companies. Capital this comparison are presented below est performance. A similar situation cities and the main ports represent (table 1.1). The study also measures may be observed in Honduras and the six Central American countries the trading across borders area, with the Dominican Republic. The cities in (Costa Rica, El Salvador, Guatemala, reference to 7 main ports8 and 3 El Salvador and Nicaragua, however, Honduras, Nicaragua and Panama)6 secondary ports9. In addition, Doing show a more homogeneous perfor- and the Dominican Republic in the Business in Central America and the mance, with cities in El Salvador be- Doing Business annual report compar- Dominican Republic 2015 for the first ing ranked in intermediate positions ing 189 economies in the world. The time includes a gender perspective and cities in Nicaragua in still lower countries in the region share a similar based on the study of the laws and positions. Nevertheless in Nicaragua, legal and regulatory framework. The regulations that impose differential on dealing with construction permits, creation of the Central American treatment for women (box 1.1). The León is the leader, and Estelí and Integration System (SICA) evidences data are based on laws, regulations, Juigalpa are also ranked among the the aspirations of the region to work decrees, administrative procedures 10 best performers in this indicator. as a block at an economic, political and and official fees, as well as on in- dividual interviews with 290 local In addition to the global ranking, the social level. In line with the importance experts, including lawyers, notaries, “distance to frontier” measure reflects of regional integration, Doing Business accountants, architects, engineers, the gap between each economy and in Central America and the Dominican construction companies, professional the best global practice for each Republic 2015 is the first regional study concerning business regulations and associations, customs agents, freight measured indicator. This measure not their practical implementation, that forwarders and others who regularly only ranks the economies in relation in addition collects data from 15 sub- carry out or advise firms on these to each other, but also shows how national locations in five countries: far one is from the other. The aver- procedures10. age distance to frontier for the three measured indicators is significant FIGURE 1.1 Ten ports and 22 cities are measured in 7 countries and differs by almost 20 points be- tween Panama City and Choluteca 85°W 20°N Puerto Plata AT LA N T I C Dajabón Santiago de OCEAN (Honduras). Another observation is los Caballeros HAITI DOMINICAN REPUBLIC that none of the 7 countries under 19°N ME XI C O B E L IZE Higuey Gulf of Santo Domingo Honduras Puerto Caucedo study is outstanding in each one of Santo Tomas Puerto Castilla Ca ri b b e a n S e a the 3 measured areas. Even San José 18°N de Castilla Puerto Cortés Caribbean Sea GUATEMALA 0 50 Kilometers Cobán San Pedro Sula de Costa Rica and Panama City, which 72°W 71°W 70°W 69°W 15°N Quetzaltenango HONDURAS 80°W Guatemala are ranked among the 6 top perform- Escuintla Tegucigalpa C E N T RAL AME RI C A Puerto Quetzal Santa Ana San Salvador Soyapango San Miguel PROJECT CITIES ers in all the areas, show distances Puerto Acajutla between 7 and 11 points respectively, Choluteca PROJECT PORTS EL NICARAGUA Estelí NATIONAL CAPITALS SALVADOR Puerto Corinto León Lake Managua RIVERS MAIN ROADS behind the best performance in at Juigalpa PA C I F I C least one of the measured indicators11. Managua RAILROADS OCEAN INTERNATIONAL BOUNDARIES Lake Nicaragua A comparison of each one of the 10°N San José Puerto Limón 10°N indicators on a separate basis yields COSTA RICA Puerto Manzanillo Panama even more varied results. For starting Canal Panama a business, for example, the countries PANAMA PANAMÁ 0 100 200 Kilometers Gulf of Panamá leading the ranking are those that have SEPTEMBER 2014 implemented one-stop shops or online IBRD 41183 This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information GSDPM shown on this map do not imply, on the part of The World Bank COLOMB IA portals, and most of all it is the capitals Group, any judgment on the legal status of any territory, or any Map Design Unit endorsement or acceptance of such boundaries. that obtain the largest benefits from OVERVIEW 3 TABLE 1.1—How close are the 22 cities from the best regulatory practices in the world? Average Global ranking Distance to Ranking in the Distance to Ranking in Distance to Ranking in distance to for 3 indicators frontier for ease of starting frontier for the ease of frontier for the ease of frontier for (1-22) starting a a business dealing with dealing with registering registering Country City 3 indicators business (1-22) construction construction property property (100 = highest (100 = highest permits permits (100 = highest (1-22) efficiency) efficiency) (100 = highest (1-22) efficiency) efficiency) Costa Rica San José 79.15 2 80.90 4 78.14 5 78.40 1 Soyapango 71.52 9 80.78 6 61.58 16 72.20 10 San Salvador 70.90 11 79.87 10 57.19 19 75.65 2 El Salvador Santa Ana 70.29 12 66.19 20 71.30 8 73.39 9 San Miguel 69.36 14 69.17 15 65.19 14 73.71 8 Guatemala 74.66 3 83.72 2 66.18 13 74.07 5 Quetzaltenango 68.33 15 70.34 14 60.37 17 74.28 4 Guatemala Cobán 65.60 19 71.61 13 51.28 21 73.92 7 Escuintla 64.84 21 77.55 11 42.91 22 74.07 5 Puerto Cortés 73.97 5 68.04 16 82.02 3 71.84 11 San Pedro Sula 73.85 6 67.38 17 82.65 2 71.51 12 Honduras Tegucigalpa 71.43 10 74.84 12 69.37 12 70.09 13 Choluteca 61.63 22 66.66 18 52.97 20 65.26 17 Estelí 69.48 13 64.37 21 80.61 4 63.46 18 León 67.88 16 62.89 22 85.24 1 55.52 22 Nicaragua Managua 67.12 18 80.27 8 63.50 15 57.58 20 Juigalpa 64.88 20 66.43 19 71.17 9 57.03 21 Panama Panama 80.85 1 91.93 1 75.97 6 74.65 3 Santo Domingo 74.13 4 81.60 3 70.88 10 69.90 14 Higüey 73.65 7 80.28 7 73.86 7 66.81 16 Dominican Republic Dajabón 72.49 8 80.23 9 70.24 11 67.00 15 Santiago de los 67.20 17 80.89 5 58.80 18 61.92 19 Caballeros Note: The distance to frontier captures the difference between the performance of each economy and the best observed performance (the frontier) at a global level in each measure for the 3 indicators under study (starting a business, dealing with construction permits and registering property). An economy’s distance to frontier is indicated on a scale from 0 to 100, where 0 represents the lowest performance and 100 the best global practice or “the frontier”. A higher score denotes a more efficient regulatory environment. This measure provides a more accurate view of the performance of each economy and how much progress it has made over time. The global ranking on the ease of doing business is based on an average of the distance to frontier for the 3 indicators. For more details, see the section About Doing Business and Doing Business in Central America and the Dominican Republic 2015. Source: Doing Business database. this service. In the Dominican Republic, Variations within each country are a However, the most remarkable perfor- the use of a notary is optional, and function of the different degrees of mance differences are observed in the there is no significant sub-national cadastre updating, delay differences dealing with construction permits area. variation. In Honduras, it is faster to at the local offices of the property This should not be surprising, given start a business in the cities where registry and alternatives for obtaining that 72% of the procedures associated the chamber of commerce is in charge the municipal clearance certificate with construction permits are under of the registration. In the registering (such as connection between the departmental and municipal compe- property area, the ranking depends property registry and the municipality tence. The smallest cities12 generally mostly on national policies such as in San Salvador or the possibility of show the best performance in this area the quality of cadastral information submitting the last receipt evidencing (figure 1.2). The complexity of environ- or the efficiency of property registries. payment in Guatemala City). mental assessment studies and the 4 DOING BUSINESS IN CENTRAL AMERICA AND THE DOMINICAN REPUBLIC 2015 cost of the construction license are the FIGURE 1.2 There is a significant gap in the dealing with construction permits area, factors that have the greatest impact not only at a regional level, but also within the same country on the total time and cost, followed Dist nc to th fronti r ( v r ) by the system of inspections during 100.00 construction. S n P dro L ón (85.24) In the trading across borders area, the Sul (82.65) 80.00 S nt An 75.13 region is divided into 2 groups. The Hi ü (73.86) Av r of Gu t m l (71.30) 71.75 (66.18) 68.45 22 citi s first, comprised of Panama City, the (67.79) 63.82 S nti o d los M n u (63.50) Dominican Republic and Costa Rica, is 60.00 S n S lv dor (57.19) C b ll ros (58.80) Cholut c 55.19 among the 50 economies in the world (52.97) Escuintl B st where trading across borders is easiest, (42.91) p rform nc with required times and documents 40.00 Av r which are similar, on average, to OECD Low st high-income countries and slightly p rform nc 20.00 lower costs. On the other hand, the sec- ond group, comprised of El Salvador, Guatemala, Honduras and Nicaragua, 0.00 which ranks between 70 and 102 glob- Gu t m l El S lv dor Dominic n Hondur s Nic r u R public ally, requires an average of 16 days and between 6 and 7 documents for Note: The ranking for the dealing with construction permits indicator is based on the distance to frontier scores in importing and exporting a container by the 3 sub-indicators (procedures, time, and cost). Hong Kong SAR, China represents the best global practice in the dealing with construction permits indicator, with a score of 95.53. maritime transport, which is similar to Source: Doing Business database. TABLE 1.2 How close is the region to the best regulatory practices in the world in the trading across borders area? Exports Imports Distance to Ranking in the frontier for trading Country ease of trading across borders Documents Time Cost Documents Time Cost (City and port of origin/destiny) across borders (100 = highest (number) (days) (USD) (number) (days) (USD) (1-10) efficiency) Panama 91.25 1 3 10 665 3 9 1,030 (Panama City - Manzanillo) Dominican Republic 85.56 2 4 8 1,040 5 10 1,145 (Santo Domingo - Puerto Caucedo) Dominican Republic 85.04 3 4 8 1,113 5 11 1,140 (Santiago de los Caballeros - Puerto Plata) Costa Rica 80.84 4 5 14 1,020 5 14 1,070 (San José - Puerto Limón ) Honduras 76.50 5 5 12 1,450 6 16 1,630 (Tegucigalpa - Puerto Cortés) El Salvador 76.01 6 7 13 1,045 7 10 1,035 (San Salvador - Puerto de Acajutla ) Nicaragua 75.84 7 5 21 1,140 5 20 1,245 (Managua - Puerto Corinto ) Guatemala 72.79 8 8 16 977 6 16 1,115 (Guatemala City - Puerto Quetzal) Honduras 71.15 9 5 13 2,308 6 15 2,359 (Tegucigalpa - Puerto Castilla) Guatemala (Guatemala City - Puerto Santo Tomás de 70.10 10 8 17 1,355 6 16 1,445 Castilla) Note: The ranking for the trading across borders indicator is based on the distance to frontier scores in the 3 sub-indicators (documents, time, and cost for importing and exporting.) Singapore represents the best combined global practice concerning time, cost and documents, with a score of 96.47. For more details, see the section About Doing Business and Doing Business in Central America and the Dominican Republic 2015. Source: Doing Business database. OVERVIEW 5 BOX 1.1 WHAT IS THE LEGAL STATUS OF WOMEN IN CENTRAL AMERICA AND THE DOMINICAN REPUBLIC?i During the last century, the role of women has been key for the world’s economic development. The removal of legal obstacles for women—representing half the population and the potential human capital available in their countries—generates eco- nomic benefits beyond gender equalityii. In Central America and the Dominican Republic, more women of working age have entered the labour force over the past 12 years. However, out of the total number of women of working age, 48% participate in the labour force, a figure below the average for Latin America and the Caribbean (54%) and OECD high-income countries (55%)iii. The study Women, Business and the Law, published every 2 years by the World Bank Group analyses the incentives and legal and regulatory restrictions affecting women when it comes to starting their own business or entering the labour market. Between 1960 and 2010, 15 countries in Latin America and the Caribbean reduced approximately 84% of the legal restrictions on women to purchase and manage property and to act on their own, for example, obtaining financing, opening a checking account, or signing a contractiv. Based on the evaluation carried out by Women, Business and the Law, in the Dominican Republic as well as in other 14 countries such as Canada and Spain there have been no differences in the law for men and women since 2013. However, in the six Central American countries, some restrictions diminishing women’s legal status as head of household or restricting them access to certain jobs still persistv. The civil legislation of Hondurasvi, for example, grants priority to men within marriage to act on behalf of the couple’s young children. As for Nicaragua, a woman may act on behalf of her family only in the absence of the husbandvii. Concerning labour, laws in Costa Ricaviii, Hondurasix, Panamax and Nicaraguaxi forbid women’s access to certain jobs. Limitations such as not being allowed to work night shifts, for example, as is the case in Costa Rica, could reduce women’s involvement in labour in sectors operating 24 hours a day. In the Philippines, high labour demand at call centers encouraged the government to remove in 2011 the prohibition for women to work night shifts. In India, a legal exception was established to enable work at night for women hired by technology service companies. Establishing by law a mandatory retirement age that is lower for women as compared to men may also limit their profes- sional careers over time, thus negatively impacting their pensions and other retirement benefits. This happens in El Salvador, Honduras and Panama. On the other hand, incentives such as the prohibition to fire a woman during pregnancy, compensated maternity or paternity leaves and laws protecting the equality principle in remuneration promote women’s participation in the labour force. In the six Central American countries and the Dominican Republic, governments have adopted a good practice consisting of subsidiz- ing maternity leave payment, with a percentage participation of employers; in El Salvador, the government subsidizes 100% of these leaves. Another incentive is granted through laws seeking to increase women’s participation in high decision-making positions. In the six Central American countries and the Dominican Republic, laws establishing quotas for women’s participa- tion in electoral lists for seats in congress and at a municipal level have been approved. The most significant challenge for the countries in the region is effective implementation of laws protecting women against violence. Despite the existence of all kinds of laws against domestic violence and different types of abuse (physical, sexual and psychological), the Economic Commission for Latin America and the Caribbean estimates that up to 40% of women in the region could be affected by physical violencexii. In addition to the direct suffering of the victims, violence against women has economic consequences for society, including higher costs associated with health and justice systems and a loss of productivity for local companies. i The study Women, Business and the Law is a World Bank Group publication that studies the legal and regulatory barriers affecting women’s participation in economic activities and in the labor market in 143 economies in the world. The 3 studies in the series may be reviewed on the website http://wbl.worldbank.org/ ii Duflo, Esther, “Why Political Reservations?” Journal of the European Economic Association 3:2-3 (2005); Duflo, Esther, “Women Empowerment and Development”, The National Bureau of Economic Research Working Paper 17702 (2011). iii World Development Indicators 2014, Washington, DC: World Bank. iv Hallward-Driemeier, Mary, Tazeen Hasan and Sarah Iqbal. 2013. Historical Database of Women’s Legal Capacity and Property Rights. World Bank. As of 2010, four of the 15 countries in Latin America and the Caribbean that were analyzed in the study had a total of 5 restrictions; among them, Bolivia, Chile, Honduras and Nicaragua. These restrictions are related to a woman’s status as head of household, the property rights of married women and women’s capacity to get a job without the need to ask the permission of their spouse. v As considered under the methodology of the study Women, Business and the Law. vi Article 239, Honduras Civil Code. vii Article 151, Nicaragua Civil Code. viii Articles 87 and 88, Costa Rica Labor Code. ix Article 128, Honduras Labor Code. x Article 104, Panama Labor Code. xi Articles 12 and 16 of Ministerial Resolution on Health and Safety dated February 22, 2002 and Article 193 of Law 195, Labor Code. xii “¡Ni una más! Del dicho al hecho: ¿Cuánto falta por recorrer? Únete para poner fin a la violencia contra las mujeres”. ECLAC. 2009 6 DOING BUSINESS IN CENTRAL AMERICA AND THE DOMINICAN REPUBLIC 2015 the average for Latin America and the to operate. In Costa Rica, registration to deposit the minimum capital in a Caribbean (table 1.2). in the registry of commerce is carried bank account. However, while the 12 out fully online. Guatemala launched procedures take 14 days in total at an online portal in 2013, whereby 21% of Tegucigalpa, twice the time is required companies are currently opened online. in Choluteca, Puerto Cortés and San COMPARING REGULATIONS The portal enables licensed notaries Pedro Sula. This is due to the fact that AND THEIR APPLICATION to make the enquiry concerning the chambers of commerce registering ACROSS CITIES AND availability of the proposed company companies in the registry of commerce COUNTRIES IN CENTRAL in Tegucigalpa and San Pedro Sula are name14, obtain fee settlement and AMERICA AND THE deliver the title deed with all the other more expeditious than in Choluteca DOMINICAN REPUBLIC documents for registration and the des- and Puerto Cortés, where this is carried ignation of a tax identification number out by the Property Institute. In San Starting a business online. Moreover, employer registration Pedro Sula, the procedure takes longer Starting a business is governed by with the Guatemala Social Security because 20 days are required to obtain commercial laws regulating the role Institute and the Ministry of Labor may the municipal operation permit. of public registries, tax laws or regula- also be completed. However, in spite tions, and the labor and social security of the fact of being theoretically avail- In all the cities in the Dominican legislation. In the six Central American able throughout the national territory, Republic, 7 procedures that take countries, the use of notaries is man- its use is concentrated in the capital, between 19.5 days in the capital and datory; in the Dominican Republic it where the registry of commerce has 24.5 days in Higüey are required. In is optional. Only Guatemala and the promoted the portal more intensively Dajabón, no procedure is carried out Dominican Republic do not require and has trained notaries. online, and the cost is higher due to municipal registration or permits. In El the need to travel to the capital or to Salvador, Guatemala, Honduras, and In El Salvador the portal was launched Santiago de los Caballeros to register the Dominican Republic there is a mini- in April 2013, but it is scarcely used15. the commercial name at the National mum capital requirement, ranging from Notaries in the capital and the neigh- Industrial Property Office and the reg- 2.7% of per capita income in El Salvador boring city of Soyapango visit the istry of commerce. Although no notary to 43% in the Dominican Republic. This registry of commerce of San Salvador, fee costs are incurred in the Dominican practice has already been eliminated which operates as a one-stop shop. Republic, registration costs16 and the in more than half of the economies The one-stop shop processes the minimum capital are the most expen- measured by Doing Business. registration of the company, its au- sive in the region. thorization by the national taxpayer In all, 5 to 13 procedures are necessary registry and its registration with the Companies in Nicaragua are directly to start a business—far from the single Salvadoran Social Security Institute registered in the registry in each one of procedure required in Canada or New and the Ministry of Labor. The same as the measured cities. In Managua—the Zealand. Except for Panama, where at municipalities in Guatemala (except second fastest city after Panama— starting a business requires only 5 for the capital), notaries in Santa Ana there is a one-stop shop, where the procedures that take 6 days, twice the and San Miguel visit the registry of company is registered in the registry of procedures and three times more time commerce at the capital only to reg- commerce, the single taxpayer number than in OECD high-income countries ister a company. Instead of processing is obtained, registration with the social are required in the region on average. In all other requirements through the one- security agency is carried out and a addition, average costs are higher than stop shop at the capital, they prefer to municipal pre-registration fee is paid. in 80% of the economies measured by carry out all other procedures at local In León and Estelí the registration is Doing Business. offices because, according to them, it carried out in two phases: first, the is easier for entrepreneurs to carry out company is registered, and then, the Guatemala, El Salvador and Nicaragua the procedures and follow up on them books and the business category are have implemented one-stop shops locally than to travel to the capital. registered. In Juigalpa, the company located in their capitals. Furthermore, and the books may be registered in just all the countries, with the exception of All the measured cities in Honduras one step but, the same as in León and Honduras and Nicaragua, have online have 12 requirements. In Choluteca Estelí, the legal representative autho- portals13. The online portal existing in and Puerto Cortés an additional pro- rization document is also registered. Panama—a pioneer in the region—al- cedure is carried out with the notary This system increases the registration lows users to process the operation no- who must prepare a separate official cost as well as costs on account of tification, which authorizes companies letter authorizing the entrepreneur professional fees. OVERVIEW 7 Dealing with construction cities is carried out in partnership with Registering property permits private sector associations. The regulation that governs real estate In Central American countries, the sales transactions is largely the same study and approval of construction The two factors that have greatest across the countries, with regulations permits are carried out by municipali- impact on the time required for deal- established in civil codes as well as in ties17. All construction projects in the ing with construction permits are the registry and cadastre laws. Except Dominican Republic are approved by permit and the environmental assess- for Guatemala, the countries have a the Ministry of Public Works after a ment study. While in the three cities in single property registry, which gener- review by municipalities. As part of the Nicaragua (Estelí, Juigalpa and León) ally has local offices in each city. In the study of the projects, the legal status of the construction permit is issued within Dominican Republic and Panama, all the property where the construction is no more than 10 days, at least 2 months the procedures required for transferring to be carried out is certified, as well as are required for this in the Dominican a property are managed by central gov- authorized land uses and feasibility for Republic. Differences also exist in ernment agencies, while in Costa Rica, public service connections. In addition, environmental assessment studies. El Salvador, Guatemala, Honduras and an environmental assessment study Although the countries have regula- Nicaragua the municipal cadastre in is required in the majority of Central tions qualifying environmental risk each city is also involved. In Costa Rica, American countries, Panama being the and establishing simpler procedures El Salvador, Guatemala and Panama, only country that requires a certifica- the property registry operates on a for low-risk constructions, the lack of tion of this study before a notary. In the fully online basis, and the time required drinking water services and sewage for registration is 13 days on average, Dominican Republic, environmental re- networks, requiring the construction of which is less than half the time re- quirements are only applied in Santiago septic tanks and drilled wells, changes quired in Honduras and the Dominican de los Caballeros, and in Nicaragua, environmental risk qualification and Republic, where the online system only in Estelí. results in a more complex procedure. is still under implementation. For its In Guatemala City, for example, the part, Nicaragua uses paper-based Compared to the average for OECD Ministry of the Environment approves documents, and the registry takes high-income and Latin America and the projects within 14 days, while in the 10 days on average. However, in none Caribbean countries, a higher number of procedures (15) is required in the other municipalities in the country of these countries are the registries region on average, but the process 2 months are required and even 4 in able to cover 100% of the properties. takes fewer days (128). In the 22 cit- Escuintla, where builders must submit, In Nicaragua, the Dominican Republic ies, more than half of the procedures together with the environmental as- and Guatemala, 1 to 3 procedures must correspond to the phase prior to con- sessment study, a hydrogeological be completed for the evaluation of the struction. Although 8 procedures are study whose approval takes 3 weeks. property used for the estimation of the required on average, in the capital of El transfer tax. The average cost is 5.3% of the commer- Salvador these procedures may reach An average of 7 procedures taking 41 cial warehouse value, three times the 14, including the zoning certificate and days are required to complete a prop- average for OECD high-income coun- the environmental approval, public erty transfer in Central America and tries and twice that for Latin America service feasibility procedures and in- the Dominican Republic. The region’s and the Caribbean. Across cities, the spections. Puerto Cortés, in Honduras, performance is better than that for cost ranges from 1.7% of the warehouse and Guatemala City have managed Latin America and the Caribbean, to consolidate procedures and make value in San José (Costa Rica) to 17.6% in where an equal number of procedures project approval more efficient through Choluteca (Honduras). The construction and 63 days are required, but it is one-stop shops. In Puerto Cortés the permit represents the major share of ranked behind OECD high-income one-stop shop consolidates both the the cost—48% on average. However, in countries, where only 5 procedures environmental authority and public San Pedro Sula (Honduras) it amounts and 24 days are required. In San José service companies. The one-stop shop to 90%. Investment in adjustments de Costa Rica, it is easier to register a in Guatemala City approves construc- to water and sewage services makes property thanks to the online property tion permits as well as environmental dealing with construction permits even registry, enabling online issuance of assessment studies. Besides one-stop more costly in the region. For example, the cadastral map together with the shops, the cities of San Pedro Sula in Escuintla, the environmental assess- clearance certificate having legal in Honduras and San José de Costa ment study represents 49% of the total validity. Entrepreneurs require 19 days Rica adopted another strategy. The cost, and in Choluteca the construction and 5 procedures at a cost of 3.4% technical review of the projects in these of water wells adds up to 32%. of the property value. In contrast, in 8 DOING BUSINESS IN CENTRAL AMERICA AND THE DOMINICAN REPUBLIC 2015 the Nicaraguan cities of Juigalpa and the procedures are the same in all the Trading across borders León, 9 and 10 procedures are required cities, but registries are the slowest in The performance of the region in the respectively, and a municipal clear- the region, with delays between 25 and trading across borders area is hetero- ance certificate, the preparation of a 60 days for deed registration. Indeed, geneous. In Panama, which is ranked map, a valuation, a procedure where in Higüey and Dajabón, registry offices closer to the regulatory frontier of most the notary inserts in the deed all pro- receive the documents, but these are efficient practices in trading across bor- cessed documents and a notification processed in other cities. In Guatemala ders, the import of a container requires to the municipality must be added. City, the last tax payment certificate 3 documents, 9 days and USD 1,030 The complete process takes three can be submitted as proof of payment, and its export requires 3 documents, times more than in San José and costs while in the other cities in the country a 10 days and USD 665. The Dominican between 4.2 and 4.4% of the property specific certificate must be requested. Republic and Costa Rica also show a value. In the property registry offices of Cobán performance similar to that of OECD and Escuintla, registration applica- high-income countries. For their part, In each country, differences across in El Salvador, Guatemala, Honduras, cities are due to the different degrees tions are received and scanned, but and Nicaragua, importing requires on of cadastre updating and variations are processed in a centralized manner average 6 documents, 16 days and USD in response times by property regis- at the Guatemala City registry. In 1,472, while exporting requires 6 docu- try offices. In Nicaragua, Estelí has Quetzaltenango (Guatemala), a second ments, 15 days and USD 1,379. This is an updated cadastre and does not office independent from the property similar to the average for Latin America require the preparation of a property registry is in operation, having slightly and the Caribbean, but relatively more map, in contrast to León and Juigalpa, different response times. burdensome than in OECD high-income or that the General Tax Department countries, where 4 and 5 documents, carries out an inspection, as required The costs for transferring property in the region are comparable with those between 6 and 4 days less, and ex- in Managua. In San Salvador, the mu- penses between 25 and 22% lower are nicipal clearance certificate, which is for OECD high-income countries and required. necessary in the other 3 cities in the lower than those for Latin America country, is not required because the and the Caribbean. They range from The number of necessary docu- property registry has access to data 2.4% of the property value in Panama ments shows significant variation. In on municipal debtors. In Honduras, City to 5.7% in Tegucigalpa, Honduras. Guatemala, twice the documents than the procedures are the same in all the The highest cost is represented by the in Panama are needed for importing cities, but the property registry has property title transfer tax, ranging and exporting a container by maritime different response times, particularly from 1.5 to 4% of the property value, transport. In addition, the systems in Choluteca, where a digitalization followed by notary fees, reaching up to implemented for importers and ex- process under development is creat- 4% of the sale in Honduras, and public porters to process the documents ing delays. In the Dominican Republic, registry fees. show different sophistication levels TABLE 1.3 The implementation of systems to make foreign trade easier varies across countries What countries have an online Customs entry with customs authorities Foreign Trade One-Stop Shop? Country What documents are submitted to the Is there an Authorized Economic Import Export Customs Office online? Operator program? Customs entry + supporting documents and Costa Rica O P P without physical copies to the customs office El Salvador O P O Guatemala O P P Only customs entry (with physical Honduras O Partial O copy to the customs office) Nicaragua O Partial O Panama O P P Customs entry + supporting documents and Dominican Republic O O P with physical copies to the customs office Note: The one-stop shop in Honduras is implemented only for a limited number of documents, among them the FAUCA and certificates of origin. The Nicaraguan one-stop shop enables the processing of many of the required export procedures, but a visit to the office is still necessary. Source: Doing Business database. OVERVIEW 9 from one country to the other (table that half of the time necessary for 1.3). The system for document filing exporting and importing is related PROMOTING REGULATORY with the General Customs Department to the preparation of the necessary IMPROVEMENT THROUGH in Costa Rica has the highest digitali- documents. In addition, the fact that PEER-LEARNING AT LOCAL, zation level, while paper-based proce- during the last 10 years all the coun- REGIONAL AND GLOBAL dures are predominant in the rest of tries in the region have reduced the LEVELS the region. On the other hand, foreign time necessary for exporting by 40% From the point of view of public poli- trade one-stop shops in Costa Rica, El must be highlighted, while the average cies, the uneven performance across Salvador and Guatemala have man- the three areas measured in each city reduction in Latin America and the aged to automate a larger number of reveals improvement opportunities as Caribbean was 17%. procedures and enable exporters to well as opportunities for sharing suc- obtain a higher number of documents The cost for trading across borders cessful practices (figure 1.3). Besides online without the need to directly visit also varies significantly; the cost the efforts to find new ways of improv- an agency. for exporting ranges from USD 665 ing the regulatory environment for The same divergences are found in in Panama to USD 2,308 in Puerto companies, another way of progressing the region concerning the necessary Castilla (Honduras). The cost of land is to reproduce good practices and time for importing and exporting. transport represents between 48% for implement successful reforms already In Panama, 9 days are required for importing and 53% for exporting. One existing in another city in the same importing and 10 for exporting, while of the factors that may potentially in- country or even in another country in Nicaragua the required days are 20 crease costs in the region is the lack of within the region. Peer-learning not and 21, respectively. However, a com- competitiveness in the land transport only makes reforms easier, but also mon feature for all these countries is sector. prevents effort duplication. FIGURE 1.3 Uneven performance across the different areas measured in each city reveals opportunities for reform and exchange of good practices R nkin (1-22) B st p rformin 1 indic tor Glob l r nkin for 3 indic tors Worst p rformin 22 indic tor P n m (P n m ) S n José (Cost Ric ) Gu t m l (Gu t m l ) S nto Domin o (Dominic n R public) Pu rto Cortés (Hondur s) S n P dro Sul (Hondur s) (Dominic n R public) D j bón (Dominic n R public) So p n o (El S lv dor) T uci lp (Hondur s) S n S lv dor (El S lv dor) S nt An (El S lv dor) Est lí (Nic r u ) S n Mi u l (El S lv dor) Qu t lt n n o (Gu t m l ) L ón (Nic r u ) S nti o d los C b ll ros (Dominic n R public) M n u (Nic r u ) Cob n (Gu t m l ) Juij lp (Nic r u ) Escuintl (Gu t m l ) Cholut c (Hondur s) Hi ü Note: The performance by indicator depends on the “distance to frontier” score for each city compared to that attained by the others. In addition, the global ranking is the average of the distance to frontier score for each city in the 3 indicators (starting a business, dealing with construction permits and registering property). For example, in Choluteca (Honduras), despite the fact that its lowest performance is in the dealing with construction permits area (20th position), its average score in the 3 indicators is 61.63, the lowest across the 22 cities. Source: Doing Business database. 10 DOING BUSINESS IN CENTRAL AMERICA AND THE DOMINICAN REPUBLIC 2015 The Mexican experience may serve as FIGURE 1.4 The Mexican states that make the most efforts to maintain an active an example. A consultation carried dialogue with their peers have a better business regulatory environment out in 2013 to public officials from the 31 Mexican states showed that peer- Av r dist nc to th b st p rform nc in M xico in four m sur d r s b st t (scor ) learning is an important regulatory 100 improvement tool. The Doing Business in Mexico series and the bi-annual Colim 90 meetings organized by the Federal A u sc li nt s Regulatory Improvement Commission 80 Gu n ju to (COFEMER) were identified by the St t of M xico states and municipalities as the main 70 Pu bl tools for detecting best practices. Not T m ulip s Dur n o surprisingly, the states receiving the 60 largest number of enquiries were those that consistently maintain and develop 50 good practices. The data also show B j C liforni Mor los that peer-learning works: the states 40 M xico Cit with the best performance are those that make the most efforts to contact 0 1 2 3 4 5 6 7 8 others (figure 1.4)18. Numb r of st t s cont ct d Collaboration and experience exchange Note: The correlation between the distance to frontier and the number of states that were contacted by each federal state is 0.52. The relationship is significant at the 1% level. events area already being generated be- Source: Doing Business database and a consultation carried out to state authorities invited to “right of reply” meetings tween the region and Mexico. The Federal in November 2013. Regulatory Improvement Commission (COFEMER), for example, has already signed collaboration agreements with FIGURE 1.5 On a global basis, there is a significant gap between the highest and the Costa Rica and El Salvador. The countries lowest score for the region are also taking advantage of existing Av r dist nc to th fronti r for 3 indic tors (scor ) good practices in the region, such as El Salvador, which used components from 100 N w Z l nd (94.23) a Nicaraguan housing law for its new P n m construction permit streamlining law. P n m Cit (80.85) 81.40 (80.85) 80 It is also important for national govern- B l ium 69.68 70.60 ments to have leadership so that it is (70.12) Cholut c not only their capitals that are able to (Hondur s) (61.63) take advantage of regulatory reforms. 60 B st p rform nc The data shows that there is a risk that, H iti Av r even when theoretically an improvement (45.89) Low st p rform nc may apply to an entire country, it is not 40 implemented outside the capitals. For example, while in Guatemala City the percentage of companies registering through the registry of commerce online 20 portal has been increasing, the portal is not well known among notaries in the other cities19. This may be explained by a 0 lack of promotion, training or resources. L tin Am ric nd 22 L tin Am ric n citi s OECD th C ribb n nd th Dominic n R public hi h-incom countri s The gap between the maximum and minimum scores in the 22 cities in the Note: For more details, see the sections Data notes and About Doing Business and Doing Business in Central America and region with respect to the distance to the Dominican Republic 2015. frontier is almost 20 points (figure 1.5). Source: Doing Business database. OVERVIEW 11 TABLE 1.4 Suggested reforms to improve the ease of doing business in Central America and the Dominican Republic Suggested Reform The information on each reform is presented in the last section of each chapter Involved Entities/Groups Within 1 year More than 1 year Starting a business • Promote the exchange of experiences with one- • Eliminate the minimum capital requirement • Commerce Registries stop shops and online portals across countries • Analyze the possibility of reducing the costs • Chambers of Commerce • Promote the use of online systems associated with the registration based on • Tax Administrations • Promote the implementation of reforms under the administrative cost of this process • Municipalities implementation beyond the capitals in each management • Social Security and Pension Fund Institutions country • Coordinate with other institutions the incorporation of employee registration with • Ministries of Labor • Streamline requirements across cities in a country (e.g. across registry offices and across social security and pension fund institutions • Notaries, lawyers, accountants municipalities for obtaining municipal licenses into online portals and registrations) • Replace the requirement to authorize • Make standard incorporation documents accounting books with online accounting available to the public • Make the involvement of a notary optional • Unify the company’s registration application and for simple company incorporation processes data in a single form • Replace the publication of edicts or name registrations on physical supports with online publications accessible to the public Dealing with construction permits • Promote the exchange of experiences and good • Develop risk-based criteria for constructions • Municipalities (Ministry of Public Works in the practices across municipalities in each country and environmental procedures Dominican Republic, Vice Ministry of Housing • Make construction regulations, zonation criteria • Make the environmental study more and Urban Development in El Salvador) and applicable fees more accessible to the public efficient • Environmental Ministries and Authorities • Avoid duplicity of the approvals required for the • Define clear regulations on construction • Engineers’ and Architects’ Professional construction permit to be granted permits (requirements, inspections and rates) Associations • Strengthen coordination among municipal • Establish zonation and urban development • Public Utility Companies entities and departments regulations • Implement one-stop shops • Improve the inspection system in accordance with construction complexity and risk-based criteria Registering property • Promote the exchange of good practices and • Link cadastres with the property registry for • Property Registries lessons learned concerning reforms across them to operate based on the same updated • National Cadastres property registries and cadastres information • Municipal Cadastres • Offer optional “fast-track” procedures • Continue to make information management • Tax Departments • Replace clearance certificates with the and access easier at the public property registry • Notaries, lawyers submission of the last payment receipts or with online data exchange • Maintain updated information on cadastres • Analyze the benefit of reducing costs, fees or and make the property valuation process taxes based on the administrative cost of this easier process management • Offer standardized documents for simple sales transactions Trading across borders • Make progress in regional integration and • Make control systems more expeditious • Central American Economic Integration coordination through risk analysis and concurrent Secretariat (SIECA) • Reduce the number of required documents by inspections • Customs Authorities sharing information across agencies, the use of • Improve digital information systems for • Institutions in charge of One-stop Shops technologies and form unification customs authorities • Port Authorities and Operators • Continue improving one-stop shop systems and • Allow anticipated customs clearance • Ministries of Transport services • Eliminate the mandatory involvement of a • Other entities involved in the exporting/ • Strengthen dialogue platforms with private customs agent importing process (e.g. Ministries of Agriculture, sector users • Promote free competition in the land Finance) transport sector • Private sector: customs agents, shipping companies, transport associations Note: The explanation of each suggested reform is presented in the section What to Reform in chapters starting a business, dealing with construction permits, registering property and trading across borders. Cost and time details per procedure or step may be reviewed in the sections List of Procedures and Details on Trading across Borders. Source: Doing Business database. 12 DOING BUSINESS IN CENTRAL AMERICA AND THE DOMINICAN REPUBLIC 2015 Panama City has the best performance, such as the mandatory use of customs 10. Please review the sections About Doing Business and Doing Business in Central slightly lower than the average for agents, which would imply an amend- America and the Dominican Republic 2015, OECD high-income countries. Twelve of ment to the Central American Uniform Data notes, and the list of contributors in the these cities are closer to the regulatory Customs Code or streamlining of the Acknowledgments section. frontier than Belgium, the country that customs requirements established in 11. In starting a business, San José (Costa Rica) is ranked 11 points from Panama City; in is farthest from the regulatory frontier the Association Agreement between dealing with construction permits, Panama among OECD high-income countries. Central America and the European and Costa Rica are ranked 10 and 7 points Only by adopting practices within the Union. respectively from León (Nicaragua), the best performance in the region. region, the rest of the cities could start Learning from good regulatory prac- 12. Except for the capital of Guatemala. working in order to attain a level equal 13. In the Dominican Republic, the online portal tices at all levels could encourage to that of OECD countries. The promo- is not operating for 100% of the chambers of governments to be more ambitious in commerce. tion of this convergence between the modernizing the regulatory framework 14. Legal name or denomination. countries and cities with the lowest 15. Based on information from the registry not only incrementally, but also imple- performance and those with the best of commerce, 94% of the new companies menting bold comprehensive measures performance, thereby improving the carried out the registration through a (table 1.4). This could accelerate the personal visit or physical documents until ease of doing business throughout the strengthening of the business environ- April 2014. region, is a pending challenge. Central 16. Including the registration of the trade name ment and promote higher productiv- American countries and the Dominican with ONAPI, the incorporation tax to be ity and competitiveness, which in turn, paid to DGII and the registration with local Republic could mobilize intervention would help meet the challenges posed chambers of commerce. and coordination with regional agen- by poverty, violence and inequality. 17. In El Salvador, the municipalities that do not cies, such as SIECA, which have already have local development land-use plans must achieved tangible results, such as a request the approval of construction and plot division permits from the Vice Ministry common customs regulation or online connection among customs authorities. NOTES of Housing and Urban Development. In San Salvador and Soyapango, this corresponds 1. In this report, the “region” includes Costa to the Planning Office of the Metropolitan An example worth following is the Rica, El Salvador, Guatemala, Honduras, Area of San Salvador (OPAMMS). Nicaragua, Panama and the Dominican “Ease of Doing Business Action Plan”, 18. World Bank. 2014. Doing Business in Mexico Republic. launched in 2009 by the Asia-Pacific 2014: Understanding Regulations for Small and 2. “Estado de Situación de la Integración Medium-size Enterprises. Washington, D.C.: Economic Corporation Forum (APEC). Económica Centroamericana”. December World Bank Group 2013. SIECA. This action plan established ambitious 19. The Registry of Commerce of Guatemala 3. The percentage of global trade in the collective improvement goals and region decreased from 0.36% in 2000 to has plans to implement a training program around 0.30% in 2011. Cunha, Barbara and addressed to notaries working in locations promotes exchange between member Jaramillo, Felipe. 2013. “Trade and Logistics other than the capital since August 2014. countries by means of annual meetings in Central America. A Survey of Recent 20. The 5 indicators are: starting a business, organized by the countries that are Analytical Work Sponsored by The World dealing with construction permits, contract designated as “champions” due to their Bank”. World Bank. enforcement, trading across borders and 4. Unha and Jaramillo, Osborne et al, Chaherli getting credit. good practices in each one of the focus and Nash. areas. Between 2009 and 2013, APEC 5. Moïsé, E., and Silvia Sorescu. 2013. “Trade member countries improved their per- Facilitation Indicators: The Potential Impact of Trade Facilitation on Developing formance in the 5 indicators20 by 11.3%, Countries’ Trade.” OECD Trade Policy but there are still many opportunities Paper 144, Organisation for Economic Co- for improvement and for attaining the operation and Development, Paris. 6. Although geographically Belize is part of targeted 15% by the established date Central America, it was not included in this (2015). regional study. The references to Central America include the 6 countries measured in Regional integration is especially the study. 7. The global Doing Business study measures important to make trading across one city in each one of these countries. The borders easier in Central America and regional study added 15 new cities. the Dominican Republic. Some reform 8. Acajutla (El Salvador), Caucedo (Dominican Republic), Corinto (Nicaragua), Limón (Costa actions must necessarily be taken in Rica), Manzanillo (Panama), Puerto Cortés a coordinated manner, such as, for ex- (Honduras) and Santo Tomás de Castilla ample, the adoption of certain aspects (Guatemala). 9. Puerto Quetzal (Guatemala), Puerto Castilla of the World Trade Organization (WTO) (Honduras) and Puerto Plata (Dominican Agreement on Trade Facilitation in Bali, Republic).