How Easy Is It to Start a Business?
On the campaign trail and since entering office, the new administration has trumpeted its intention to reduce the time consuming process of trámites, the bureaucratic procedure of obtaining licenses, documents and permits to do anything from buying property to obtaining residency or starting a business.
“There has to be an easier way to get things done in this country,” Vice President Luis Liberman told The Tico Times (see interview p. 8).
And yet, Costa Rica ranks the easiest country in Latin America in which to start a foreign business in the World Bank’s Investing Across Borders 2010 study. Released last week, the study rates 87 countries worldwide based on an analysis of the laws and steps required for foreign companies to establish business operations.
“Some of the factors we looked at in starting a foreign business were the number of procedures required and overall speed.
These are two areas in which Costa Rica scored very well, in terms of the regional average,” said Tanya Primiani, global investment expert at the World Bank Group. “We (also) looked at legal indicators, which we call the ‘ease of establishment index.’ Costa Rica also scored very well in that regard.”
The study found that Costa Rica does several things well to welcome foreign companies.
It does not require registration of company investments with a government agency, which can be a lengthy procedure.
Costa Rica treats national and foreign companies on “the same footing,” allowing foreign companies to hold bank accounts in different currencies and for company appointed lawyers, national or foreign, to assist in maneuvering through legal procedures.
As for weaknesses, Primani said Costa Rica could improve by setting up a digital system for registering a business. Most registration procedures are handled in person, which slows the process considerably.
The government set out to tackle this problem. In her first month in office, President Laura Chinchilla, together with the Economy Ministry, announced a National Strategy for Better Regulation and Simplification of Bureaucratic Processes, which aims to digitalize many procedures.
Still, Costa Rica is faster than its neighbors, according to the World Bank assessment.
The study found that if a limited liability company (LLC) with a $10 million investment and more than 50 employees established an operation in Costa Rica, the process would require 14 procedures, lasting an average of 63 days. The Latin American and Caribbean regional average for starting a foreign business is 74 days, with the global average clocked at 42.
As for the “ease of establishment” index, the Costa Rican score was 73.7, above the regional average of 62.8 and global average of 64.5.
Not As Easy As 1-2-3
However, some foreign business owners in Costa Rica consider the study inaccurate.
“Starting a business here is a complete circus,” said Doug Ward, owner of the Oasis of the Toucans cabins and ArenalBotanical Gardens in Tilarán, near Arenal Volcano in the north-central part of the country. “To say that Costa Rica is the best place to start a business in Latin America is one of the biggest jokes and lies there is about Costa Rica.
I guess if you’re (computer chip giant) Intel or another multinational that might be true. But for the average guy who wants to start a restaurant or a gas station or a couple of cabins, it’s a nightmare.”
Ward, who came to Costa Rica six years ago from the United States, said establishing his businesses here was “one of the most frustrating experiences you can ever imagine.” Much of his frustration stemmed from the excessive documentation required for approval to operate. He had to provide a marriage license and notarized copies of his birth certificate and passport to open a public restroom at his botanical garden.
When asked to select the most difficult step in the establishment of his whole operation, Ward replied, “all of it.”
“If I had to do it all over again, I’d do it in Nicaragua,” he said. “There, you can cross the border at 8 a.m. and you’ll have a cell phone, a connection and Internet access in two hours. Here it takes months.
I’ve found it easier to buy a house here than to get a cell phone.”
The World Bank study found that highly developed countries averaged nine procedures for a 21-day set-up time for foreign businesses, which is three times quicker than Costa Rica’s time.
“So Far So Good”
Others, however, have no such problems setting up in Costa Rica. Take Nitinol Devices & Components, a California-based medical device company soon to open a manufacturing facility in the Coyol free trade zone in Alajuela, northwest of San José. The process has been “straightforward,” said Mitchell Tatum, the plant’s general manager, who concurs with the World Bank’s findings.
“So far, so good,” Tatum said of the process of setting up a business here. “There are some things that do take longer in Costa Rica than, say, in the U.S. But the key thing for us has been that there is a relatively clear path. The government has outlined that you have to do a list of things. There might be more things to do here than in the U.S., but the fact that there is a clear path has been comforting.”
The Costa Rican Investment Board (CINDE) predicts 25 new companies will enter the country this year and employ as many as 5,500 people. In 2009, 29 foreign companies entered or expanded operations in Costa Rica, bringing in more than $304 million in investment and creating over 5,700 jobs. Revenue earned from foreign direct investment accounts for approximately 5 percent of the gross domestic product.
With positive reports such as Investing Across Borders, it would appear foreign direct investment in Costa Rica is in good shape, even with the perceived burdensome trámite process.
“I am certainly satisfied to see the results of the study in the amount of days and with the results of the ease of establishment index,” said Gabriela Llobet, the director general of CINDE. “But we are not and cannot be satisfied with the excessive trámite process that exists in this country. It exists both for foreigners and Costa Rican citizens. It is an obstacle that we have to correct.”
Matt Levin contributed to this report.
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