Doing Business in Mexico 2007 2007 Mexico in Business Doing COMPARING COMPARING REGULATION IN THE 31 STATES AND MEXICO CITY AND MEXICO THE 31 STATES IN REGULATION Doing Business in Mexico 2007 Mexico Doing Business 2007 in COMPARING REGULATION IN THE 31 STATES AND MEXICO CITY orporation C International Finance ank and the B orld W A copublication of the ©2006 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: [email protected] All rights reserved 1 2 3 4 5 09 08 07 06 A copublication of the World Bank and the International Finance Corporation This volume is a product of the staff of the World Bank Group. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank Group encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: [email protected]. Copies of Doing Business 2007: How to Reform, Doing Business in 2006: Creating Jobs, Doing Busi- ness in 2005: Removing Obstacles to Growth, and Doing Business in 2004: Understanding Regulation may be obtained at www.doingbusiness.org. Doing Business in Mexico 2007 was printed in November 2006 by IMPRIME TUS IDEAS, S.A. DE C.V. Horacio No. 340, Polanco, C.P. 11560, México, D.F. www.imprimetusideas.com This edition includes 1,150 copies Contents Doing Business in Mexico 2007 is the second subnational Overview 1 report in the series Doing Business in Mexico In 2005, quantitative indicators on business regulations and their Starting a business 5 enforcement were created for 12 cities and states. This year, Doing Business in Mexico 2007 covers all 31 states of Registering property 9 the Mexican Republic and measures the progress of the Getting credit 13 12 states analyzed last year. Comparisons with Mexico Enforcing contracts 15 City and the rest of the world are based on the indicators in Doing Business 2007: How to reform. Comparisons with Doing Business in the South-Southeast Region 19 the Brazilian states are based on the indicators in the report Doing Business in Brazil. Data notes 23 Doing Business investigates the scope and manner of regulations that encourage business activity and those that Doing Business indicators 29 constrain it. The indicators cover four areas of business State tables 32 regulation and their enforcement: starting a business, Case studies—Starting a business 39 registering property, getting credit (registering collateral) and enforcing contracts. These indicators were selected Case studies—Registering property 62 because they cover areas of state and municipal jurisdiction. The indicators are used to analyze the economic outcomes Acknowledgments 77 of the regulations and to identify what reforms have been successful, where and why. This project is the result of a request from the Mexican Other areas important to business, such as proximity to Association of Economic Development Secretaries major markets, the quality of infrastructure services, the (AMSDE), the Ministry of the Economy (SE) through security of property from theft and looting, the transparency the Federal Regulatory Improvement Commission of government procurement, macroeconomic conditions (COFEMER), and the Ministry of Foreign Affairs (SRE) or the quality of institutions, are not studied directly by through the Plan Puebla Panama General Coordination Doing Business. In order to make the data comparable (CGPPP). The project was directed by the Foreign across countries, the indicators refer to a specific type of Investment Advisory Service (FIAS), a multidonor service company—generally a limited liability company. of the World Bank Group. 1 Overview If you were to open a new business in Mexico City, the it. The results for the 31 Mexican states and Mexico start-up procedures would take 27 days on average, 8 City are presented here (table 1.1). Mexico City, as the days fewer than in Shanghai. If you decided to open a country’s most populous city, represents Mexico in the business in Guanajuato or Aguascalientes, you would global Doing Business series which compares regulatory have to wait 12 days—only one day longer than your practices in 175 economies. Doing Business in Mexico competitor in Amsterdam. But if you needed to take 2007 finds that Mexico City does not always rank high- a customer to court for a simple debt default in Gua- est among states in the four indicators measured. The najuato, resolving the dispute would take 304 days—far 12 days it takes to open a business in Aguascalientes or longer than the 217 days it takes in Dublin,1 but sig- Guanajuato, for example, compare favorably with the nificantly shorter than in Baja California Sur where it 27 days needed in Mexico City. The same holds true for takes 581 days. These examples illustrate two patterns. property registration, where Mexico City is ranked 26 First, some Mexican states compare well with the best out of 32. in the world. Second, many states need much reform to But even the best Mexican states are not interna- become globally competitive. tionally competitive in some indicators—18 days for Doing Business measures the ways in which govern- property registration in Aguascalientes and 21 days in ment regulations enhance business activity or restrain Sonora and Zacatecas compare poorly with Thailand, TABLE 1.1 Doing business in Mexico: where is it easiest? Rank State (City) Rank State (City) Rank State (City) 1 Aguascalientes (Aguascalientes) 12 Durango (Durango) 23 Veracruz (Coatzacoalcos)* 2 Guanajuato (Celaya) 13 Coahuila (Torreón) 24 Chiapas (Tuxtla Gutiérrez) 3 Nuevo León (Monterrey) 14 Chihuahua (Cd. Juárez) 25 Oaxaca (Salina Cruz) 4 Sonora (Hermosillo) 15 Hidalgo (Pachuca de Soto) 26 Tabasco (Centro/Villahermosa) 5 Campeche (Campeche) 16 Tamaulipas (Reynosa) 27 Nayarit (Tepic) 6 Zacatecas (Zacatecas) 17 Jalisco (Guadalajara) 28 Puebla (Puebla) 7 Querétaro (Querétaro) 18 Baja California (Tijuana) 29 Estado de México (Tlalnepantla de Baz) 8 Michoacán (Morelia) 19 San Luis Potosí (San Luis Potosí) 30 Guerrero (Acapulco) 9 Sinaloa (Culiacán) 20 Yucatán (Mérida) 31 Morelos (Cuernavaca) 10 Distrito Federal (Mexcio City) 21 Baja California Sur (La Paz) 32 Quintana Roo (Benito Juárez/Cancún) 11 Colima (Colima) 22 Tlaxcala (Tlaxcala) *Doing Business en México (2005) measured the city of Veracruz. In Doing Business in Mexico 2007 Veracruz was replaced with Coatzacoalcos. Source: Doing Business database. 2 DOING BUSINESS IN MEXICO 2007 FIGURE1.1 Reform in Latin America lagging behind Africa and the America is in fifth place, behind Eastern Europe, the Middle East OECD, the Middle East, and Sub-Saharan Africa. Only Countries that made at least one positive reform in 2005/06 (%) Asia performed worse (figure 1.1). Three Latin Ameri- Eastern Europe can countries—Mexico, Peru and Guatemala—made 89 & Central Asia the list of the top-10 reformers across 175 economies. In OECD high income 83 contrast, Bolivia and Venezuela made it more difficult to Sub-Saharan do business. Africa 67 Mexico, represented by Mexico City, holds the third Middle East & North Africa 61 place among the top-10 reformers after Georgia and Latin America & Caribbean 58 Romania (table 1.2). A new securities law defines for the first time the duties of company directors, replacing an East Asia 35 & Pacific obligation to “take care of the business as if it were your South Asia 25 own” with a specific list of activities that violate that duty. The law also increases scrutiny of related-party transac- Source: Doing Business database. tions. It requires full disclosure before any deal benefit- where it takes only 2 days. Another interesting com- ing a company insider can take place. Other reforms parison is that of Mexican states versus their regional reduced the time to start a business in Mexico City from competitors in Brazil. In general, Mexican states have 58 to 27 days. And the corporate income tax rate was faster procedures. However, doing business is generally cut from 33% in 2004 to 30% in 2005, and 29% in 2006. more expensive in Mexico. A Brazilian firm must pay These reforms helped Mexico climb 19 ranks to number on average 10–13% of Gross Domestic Product (GDP) 43 on the ease of doing business—proof of the gains that per capita to open a business while the same type of are possible when a country reforms. firm in Mexico has to pay 20.4%. In addition, Mexican Watch out, Mexico: China is a top-10 reformer as companies have to put up minimum capital, while their well. The government sped up business entry, increased competitors in Brazil do not. investor protections and reduced red tape in trading Doing business became easier in most Latin Ameri- across borders. China also established a credit informa- can countries between January 2005 and April 2006. tion registry for consumer loans. These reforms will 27 regulatory reforms in 13 economies in the region make China a more formidable competitor for Mexico.