Trying to do business abroad? Don’t start in Brazil or Argentina.
A new report released Friday by TMF Group named those two countries, home to two of South America’s biggest economies, as the most complicated nations in the world for international companies to do business. In total, five of the 10 most complicated countries were located in Latin America, with the region accounting for 50 percent of the 20 most complex countries.
In its second annual Global Benchmark Complexity Index, TMF Group, a Netherlands-based company that provides professional services to companies around the world, ranked 81 countries based on regulatory and compliance metrics.
The 2014 report took into account tax laws, record-keeping, information-sharing between companies and local governments, requirements for shareholders, documentation processes and fines and penalties. It also examined “hot” issues like whistleblowing, cyber security, data privacy and intellectual property laws, among others.
Argentina remained the world’s most difficult country for overseas companies to do business, keeping its title from the previous year.
Given the country’s recent economic woes, including a default scare and soaring inflation, the ranking doesn’t come as a surprise. While Argentina has continued to do business with major Asian nations like China and Malaysia, recent economic policies have restricted the flow of dollars and created a booming black market, all contributing to greater instability for international companies, investors and residents alike.
Brazil jumped from the 17th most complex country in the 2013 report to second place this year, replacing Bolivia, which slid down to third.
While Brazil hasn’t faced the same recent economic challenges as Argentina, the massive growth it experienced in the early 2000s has slowed to a crawl, concerning many both within and outside the country.
The country really sank in the rankings, though, based on its entrenched bureaucracy and miles of red tape, which make it difficult for foreign companies to understand the laws and regulations that apply to them. According to Forbes, setting up a company in Brazil can take more than four months, while construction permits take an average of 469 days to get approved.
The report said Brazil’s slide was “not a complete surprise.”
“[Brazil’s] legal system lags behind its regional peers and it suffers from a high level of government bureaucracy. The resulting ‘red tape’ means that company secretarial compliance is extremely challenging, with good execution requiring:
- local knowledge, to navigate the respective government departments
- local expertise, to effectively draft and submit documents
- local representation, to facilitate the submissions to the authorities.
It is likely that Brazil and other jurisdictions in the Americas will, in future years, continue to feature prominently in our Global Complexity Benchmark Index as the development of their legal systems and associated infrastructure is falling behind its peers.”
The other Latin American countries included in the top ten were Mexico, at sixth, and Paraguay, two spots lower at 8. Rounding out the top 20 were Peru (16), Nicaragua (17), Venezuela (18), Chile (19) and Ecuador (20). According the report, the ranking for most of these countries was primarily based on the fact that they, like Brazil, required local knowledge, expertise and representation.
The highest-scoring Latin American representative on the list was Puerto Rico, at 77th out of 81 nations — well above the United States, which came in at 53rd, and the next closest Latin American nation: El Salvador, at 41.