The International Finance Corporation’s Latin America and Caribbean Small and Medium Enterprise Facility (LAC SME Facility), a regional technical assistance programme headquartered in Lima and the Foreign Investment Advisory Service (FIAS), a joint service of the World Bank and IFC, are working with the Metropolitan Municipality of Lima to improve the local business environment through simplifying municipal business regulations.
The project launched recently by the LAC SME Facility, FIAS, and the Metropolitan Municipality of Lima aims to reduce informality through simplifying municipal business regulations, as municipal regulations account for the bulk of obstacles to formalisation. The project will focus initially on simplifying procedures for obtaining operating licenses, municipal permits for business activity, and, where possible, urban development regulations.
“This project builds on both FIAS’ comprehensive analysis of municipal investment barriers and the LAC SME Facility’s success in simplifying municipal business regulations in other countries, deepening the impact of both FIAS’ and the Facility’s work in the region,” notes Michael Klein, vice-president of private sector development and chief economist.
“The LAC SME Facility’s work with FIAS on this project underscores IFC’s strategy of making technical assistance an integral, viable part of our work program. This kind of work which improves the business environment contributes to attracting more private investment into countries,” affirms Atul Mehta, director for Latin America and the Caribbean.
According to the World Bank’s Doing Business 2004 report which provides objective measures of business regulations and their enforcement, administrative barriers for business in Peru are among the highest in the region. For example, opening a business requires, on average, 100 days, over 60% longer than in neighbouring Colombia.
Consequently, the percent of businesses operating informally in Peru is over 50%, considerably higher than in other countries in the region.
Such informality is detrimental to both the municipality and the businesses themselves. For businesses, it limits access to key resources and support and, thus, potential for growth. For municipal governments, high informality prevents the collection of accurate, precise information about local economic activity, which can be used to develop more effective support programmes.
Moreover, informal enterprises do not contribute to the municipal resources (through taxes, licensing fees, etc), further constraining the government’s ability to support them.
In a separate study, Municipal Administrative Barriers to Investment, FIAS confirms the Doing Business findings and notes that complicated municipal regulations, particularly related to urban development, actually work as a disincentive to new investment.
The mission of IFC (www.ifc.org) is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people’s lives. IFC finances private sector investments in the developing world, mobilises capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses.