Argentina and Venezuela lead ranking of Latam region’s most bureaucratic countries

RIO DE JANEIRO, BRAZIL – According to the first edition of the 2021 Latin American Bureaucracy Index (IBLAT), prepared by the Latin American Atlas Network Center in partnership with Fundación Libertad de Rosario and other institutions, a small company in the country requires an average of 794.6 hours per year to complete all bureaucratic procedures, which implies 3 hours per working day.

The IB-Lat measures the administrative-bureaucratic burden of small companies in the primary, secondary and tertiary sectors in some Latin American countries and in Spain. Likewise, the index surveys the procedures that a representative company in each sector must complete in the following areas: Employment Administration, Operations Administration and Others.

The first group covers the management of salaries, taxes and contributions, including the administration of vacation time or leave due to illness or accidents, as well as the procedures required by social security and health insurance.

In this group, the administration of hiring and firing is analyzed. In the category of procedures associated with the company’s “Operations Administration”, those related to the administration of income, real estate, consumption and value added taxes, waste management and vehicle administration are included.

Finally, the “Others” category includes procedures that do not fit into the previous categories and that are specific to the sector’s most representative economic activities.

Within this framework, the IB-Lat results for Argentina found that a small company requires an average of 794.6 hours per year to comply with all the bureaucratic procedures in the three areas analyzed. In other words, a small business must spend 3 hours of a working day on paperwork.

Thus, Argentina is in the third group, along with Venezuela, with a high burden that averages 902 hours per year, almost doubling the average time spent by the countries in group 2 (Colombia and Mexico) to comply with bureaucratic procedures, and tripling that of group 1 (Brazil and Spain).

Of the three productive sectors analyzed, the secondary is the most punished with 1,082.3 hours per year needed to comply with all procedures. The greatest burden is related to employment for companies in the secondary and primary sectors, while tax administration requires the most hours in the tertiary sector.

Considering the activities by sector, the number of procedures that a company must complete varies between 46 and 50, of which more than 85% are digitalized.

The “Operations Administration” consumes on average 48% of the time spent on formalities, particularly demanding for companies in the tertiary sector (56%) and especially those related to tax administration, which consume 94% of the time in this subgroup of formalities.

On the other hand, small companies representing the primary and secondary business sectors are more affected by Employment Administration procedures, which demand 66% and 50% of their time.

According to the report, the collection of data through interviews with the company’s administrative and accounting personnel (or external personnel dedicated to it) enabled to detect how many hours a company must dedicate per year in order to comply with all the formalities associated with employment administration and operations administration.

“From these interviews it is clear that there are numerous regulations, with the consequent result of multiplication of obstacles, loss of time and uncertainty regarding the fulfillment of obligations in a changing context of rules,” it stated.

“In fact, our country must inevitably undergo medium and long-term structural reforms that redefine the tax system, making it simpler and with a lower tax burden in order to encourage investment and growth,” it added.

“A labor reform that is more flexible and that significantly reduces labor costs is imperative. Only through comprehensive and structural reforms will it be possible to reverse this situation and begin a path to growth,” the report stated.

According to Fundación Libertad director Alejandro Bongiovanni, the Argentine productive system “is less like a regime of freedom with rules than one of slavery with permits.” He pointed out that “the amount of time and money that SMEs have to spend on a huge amount of paperwork is scandalous. Those hours and resources should be dedicated to production, not to endless bureaucracy.”

Beyond the irrecoverable cost of these procedures, Bongiovanni warned that “the Argentine bureaucratic monster” is growing and feeding itself: “New instances of control and permits are being created with the aim of having more controllers and dispatchers of permits. This means more public employment, more expenses and more deficit. Moreover, the more the bureaucratic apparatus grows, the more corruption levels are opened.”

“Reforms in this area should not involve mere ‘digitalizations’ of bureaucratic processes but rather a rethinking of procedures, permits and controls from scratch, keeping only those that are sensible and repealing the vast majority,” he added.