Brazil, India move to shed red tape for business

As growth in emerging markets stalls, Brazil and India, which have long had some of the world’s worst red tape for firms, are looking to reduce the burden.

While Brazil’s government is acting to tackle its ailing economy (the OECD says it will contract by 0.5% this year), India’s reforms are driven by a pledge by President Narendra Modi to make Indian business more competitive.

India more than Brazil needs to reduce paperwork for businesses. Last year Asia’s third biggest economy was ranked 142 by a World Bank report, below Sierra Leone and Cambodia. Brazil was ranked 120. Since late last year the government has taken several measures to make it easier for firms to do business.

In the latest move the government last month reduced the number of mandatory documents required for the import and export of goods from about 10 to just three. The measures took effect this yesterday.

Since last year the government has announced a string of other measures it hopes will bring down the cost of doing business in India.

In February it launched allows businesses to apply for or renew licenses and registrations and to file tax returns and other regulatory reports. It follows the launch in October of a portal to allow employers to register for employee benefits and a workplace safety fund in one place. Previously employers had to deal with four different units.

Also in October last year Modi introduced measures to make labour inspections (a constant concern for Indian businesses) more transparent, by having a computer pick the enterprises to be inspected.

In addition in the Labour Laws Amendment Bill 2011, approved in November by India’s Parliament, moves the definition of a small manufacturer to one with up to 40 employees (previously it was 19). This will allow more small firms to complete just one labour return rather than file separate ones.

While the government is expected to release a new bankruptcy code in the coming year (as announced by Finance minister Arun Jaitely in his budget speech in February), Modi also has plans to cut the time it takes to register a business from the current 27 days, to just one day.

There are signs the state wants to get tough. Last month Amitabh Kant, India’s secretary of industrial policy, said the government will “name and shame” states which don’t ease procedures for doing business. It remains to be seen whether it will in fact do so, and how effective this may prove.

Bye bye bureaucracy?

Not to be left out Brazil is also looking to the country an easier place to do business in. More than India, the South American giant needs to reform its crippling regulations if it is to return to growth.

There are already signs that small firms are taking strain. The turnover of small businesses in  São Paulo fell by about 15% in January  compared with the same month last year, according to a survey by small business agency Sebrae.

The country’s small business minister Guilherme Afif Domingos and the governor of the federal district (where the capital Brasilia lies) signed an accord last month to pilot the government’s simplified registration regime (Redesim) which aims to have small businesses register in five days.

At present it takes 83 days to register a business in Brazil, according to the World Bank’s 2015 Doing Business report, which ranks the country at 167 out of 189 countries for ease of starting a business.

A process to hasten the closure of businesses will take immediate effect across all states in Brazil, Domingos said, adding that over 1 000 firms had been closed via the quicker procedure – which ensures firms can be closed immediately on a web portal (Portal Empresa Simples) – since October last year.

It will likely take some time to roll out the new registration system, time Brazil can’t afford to lose.

What about SA?

Red tape is a constant concern for small businesses the world over. In South Africa a 2004 report revealed that red tape cost smaller businesses proportionately more than it does large firms –  8.3% of revenue for firms with an annual turnover below R1-million,  but just 0.2% for those with sales of over R1-billion.

With the exception of its onerous labour laws (see this previous post), South Africa arguably has far less bureaucracy than its fellow Brics members. It is ranked by the World Bank at number 43 for ease of doing business, just below Chile (41) – which recently cut the time to register a firm to two days (see this post).

It is more likely shoddy public servants and a lack of business experience among many South Africans than red tape that is to blame for the country’s poor showing on entrepreneurship (see this post).

The government, together with the private sector, needs to do more to skill better public servants and offer first-time business owners proper business support. None the less doing away with unnecessary rules that stifle job creation would also help.

Bad rules

Recent moves such as the Business Licensing Bill which is currently being redrafted, changes to the labour laws to limit the employment of temporary workers to just three months (which took effect at the beginning of this year – see this post) and measures to restrict labour brokering (effective from this month), do little to calm fears that red tape is not mounting.

Business owners will hold the Minister of Small Business Development Lindiwe Zulu to a promise she made last year when the ministry was formed, to look into and tackle any unnecessary red tape.

But as the economy flounders in South Africa (expected to grow at two percent this year), the optimism many held that a ministry for small businesses would be able to stand up for their rights, is fast beginning to fade.

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