1 Compare, Compete, Cooperate How Mexican cities and states used SNDB to improve commercial regulation Marialisa Motta Mierta Capaul Luis Aldo Sanchez-Ortega 7 June 2010

No need to go outside Mexico for good practices IndicatorBest performing cityValueGlobal rank Starting a business : proceduresNuevo León, Sinalca755 Starting a business : daysCoahuila, Guanajuato, Puebla12 days34 Starting a business : costCampeche7.4% GNI p.c.54 Construction permits : proceduresAguascalientes, Quintana Rao108 Construction permits : timeAguascalientes41 days5 Construction permits : costAguascalientes24.7% GNI p.c.26 Registering property : proceduresBaja California, Hidalgo424 Registering property : timeCoahuila, Colima15 days28 Registering property : costAguascalientes0.8% property value23 Enforcing contracts : procedures Coahuila, Colima, Durango, Jalisco, Nayaritt, Puebla, Quintana Rao, Sonora, Zacatecas 3771 Enforcing contracts : timeZacatecas24813 Enforcing contracts : costMihoacán19.5% claim value46 ► 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 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 5 ► 28 of 31 states made it easier to start a business in Mexico in 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 1. Obtain a non-encumbrance certificate 2. Obtain certificate or proof of payment of water rates 3. Obtain a certificate or proof of land taxes payment 4. Obtain property valuation of the real estate 5. The notary prepares and signs the public deed 6. Report the transfer of title to the District Cadastre 7. Register the public deed in the Public Property Registry Source: Doing Business database No changes District Government 82% Provincial Gov. 18%

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

-OECD Coahuila1612 State Drop in time to start a business Days to start a business Puebla3012 Guanajuato-12 Aguascalientes13 Michoacán514 Morelos3416 -Eastern Europe & Central Asia -Middle East & North Africa Nayarit2127 Nuevo León519 San Luis Potosí-19 Querétaro316 State Drop in time to start a business Days to start a business 2008 Sinaloa1916 Chiapas17 Chihuahua1217 Campeche1418 Baja California Sur1519 Tabasco1520 Yucatán1622 Tamaulipas524 Zacatecas724 Durango1026 Hidalgo1426 Sonora826 -South Asia -East Asia & Pacific -Sub-saharan Africa -Latin America & Caribbean State Drop in time to start a business Days to start a business 2008 Distrito Federal Baja California929 Estado de México1530 Tlaxcala1131 Jalisco732 Veracruz1531 Oaxaca1333 Guerrero1440 Quintana Roo1950 Colima957 … 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