Red Tape and Complexity Create Headaches in Latin America, Opportunity in Argentina

For all of Latin America’s advantages, red tape isn’t one of them. Regulations and tax requirements in countries throughout the region can be arcane, complex, tedious, and nonsensical, leaving some wondering whether the business opportunities in locations like Brazil, Argentina, Colombia, and Mexico are even worth the hassle.
A recent report from Amsterdam-based professional services company TMF Group, highlights the region’s shortcomings, with five Latin American countries featuring in the top 10 in its rankings of the most complex places to do business. Argentina finished dead last, while Colombia, Mexico, Bolivia, and Brazil were not far behind. Like most who have spent time working throughout the Americas, Raimundo Diaz, TMF Group’s head of the Americas, wasn’t surprised.
What struck him, however, was that some nations that have tried to push through legislation to streamline their bureaucracy have not improved. In terms of the firm’s rankings, in fact, some have gotten worse.
Latin America Compliance Challenges
Diaz singled out Mexico and Colombia as nations that have tried, and failed, to ease the compliance burden for companies. “That for me is maybe the biggest surprise,” said Diaz. “You would expect that with new legislation that people would try to make it easier for companies to do business in the country and build up the economy. It has not been the case, sometimes because the tax-income priority has been above any other consideration. Others, in order to reduce loopholes, have drafted things that have not been very business conscious.”
Mexico has done a lot to improve its appeal to foreign firms in recent years. Its opening of the oil industry was historic and enticing to global energy powerhouses, while reform to allow more players to enter the telecom sector has been applauded as something that will help break up the unhealthy dominance of Carlos Slim’s América Móvil.
But some of the smaller moves to ease the regulatory headache have fallen short. “The reforms are not enough or they do not reduce the worry that international business has of being treated equally,” said Diaz. “I think there is still a big fear in the case of Mexico in the level of bureaucracy.”
Colombia’s problem has been that, while the pro-business Juan Manuel Santos administration wants to attract foreign direct investment, shifting fiscal realities have made it difficult. The desire to promote more efficient compliance is there, but a plunge in the value of the local peso and dwindling tax revenue from oil sales means that there are currently more-pressing issues in Bogotá. The government is trying to find other sources of tax revenue to make up for the budget shortfall, and some of that burden will fall on foreign companies.
“Unfortunately, the priority has not been that of making compliance more straightforward,” said Diaz “That is clearly the case in Colombia … I don’t think it’s done on purpose. The side effect of their search for new sources of public revenue has been making the legislation more complex, less clear, and less easy to comply. Therefore, the end of the story is that it is more complex to do business.”
The Dominican Republic, while faring relatively well for a Latin American country on TMF’s list, is a location that some nearshore providers have battled with. Labor laws make it difficult to hire and fire. On top of other onerous restrictions, it has made some question whether it even makes sense to house customer service operations in the island nation.
“I’ve not come across worse labor laws aside from Brazil,” Thomas Oronti, CEO of Nearshore Call Center Services, told Nearshore Americas. His firm, which has operations in Santo Domingo, is no longer pursuing growth in the Dominican Republic because he hasn’t seen any progress. “It’s still antiquated here. There are a lot of countries in South America now that are changing and becoming more pro-business. But that is not going to happen for another year, at least, over here. That’s political suicide, supposedly, to try to change the labor codes, and they are not really conducive to something like call centers.”
When it comes to Brazil, there is a wide consensus among tech companies that operating there has become incredibly onerous. One Brazilian regulation, dealing with data-transfer requests from law enforcement, has come under fire from industry firms. Microsoft, for one, has faced a difficult decision of whether to comply with a local regulation since doing so would mean breaking U.S. law. In one instance, it refused to hand over the requested information — with grave results. “The Brazilian government has levied fines against the company’s local subsidiary, and in one case arrested and charged criminally a local employee, when Microsoft refused to violate U.S. law by complying with the Brazilian orders,” reported InfoWorld.
Other new data laws, in both Brazil and Costa Rica, have similarly been met with a here-we-go-again attitude by many. That may not be fair when in this instance — a move for better data protection. Most firms do understand that this is a legitimate concern in 2016. But low expectations are what most governments in the region have earned. In Brazil, the fear is real, with São Paulo attorney Marcio Cots noting that expanding the nation’s “Marco Civil of Internet” law would mean that sourcing firms must invest more in back-office departments and data storage security — and face increased legal risk in the case of a data breach.
Latin America Compliance Progress
There are positive signs, however. Chile, which improved from being the 19th most complex to 37th, out-ranks its peers in TMF’s ease-of-doing-business scores. Brazil, for all of its intractable issues, improved from second to 10th. And Argentina, while ranking as the worst in the study, may be back on the right path. This is great news for IT, BPO, and customer care providers working in the nation where competition has made the market increasingly difficult to navigate.
New President Macri Mauricio has settled with the nation’s debt holders, pledged to be an advocate for the IT/BPO industry through investmen, and is saying all the right things about improving compliance. “He is moving in the right steps to move Argentina back into the picture,” said Diaz.
TMF does have some concern about the urgency in Buenos Aires to ease the regulatory and tax burden on international companies. As in Colombia, there are simply other priorities. But Diaz is optimistic, particularly in the long term, since Macri has so much business-world experience and knows that his nation’s international reputation needs to change.
“Our team in Argentina is very positive about the future,” said Diaz. “I like to say that these countries that are complex to do business in can be a hidden gem.”
Even though Argentina ranks as the world most complex place to do business, now might be the perfect time to jump in. The IT/BPO sector once adored all the advantages of Argentina: the region’s largest English talent pool, a well-educated labor force, top-level programmers. So if the current economic challenges disappear, it will pay to beat the crowd that will soon be rushing back into the nation.
“Argentina is a fantastic opportunity today to invest,” said Diaz. “There will be fewer competitors to reach the opportunities. So I do believe that a country like Argentina, in which there are very interesting prospects but a complex situation, can be a fantastic opportunity.”
Photo: Lisa Nottingham