LIMA, PERU, July 8, 2004
—The International Finance Corporation’s Latin America and Caribbean Small and Medium Enterprise Facility (LAC SME Facility, a regional technical assistance program 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 yesterday 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 formalization. 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,” noted 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,” affirmed 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 neighboring 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 programs. 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 confirmed the Doing Business findings and noted that complicated municipal regulations, particularly related to Urban Development, actually work as a disincentive to new investment.
ABOUT IFC
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, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses. From its founding in 1956 through FY03, IFC has committed more than $37 billion of its own funds and arranged $22 billion in syndications for 2,990 companies in 140 developing countries. IFC's worldwide committed portfolio as of FY03 was $16.8 billion for its own account and $6.6 billion held for participants in loan syndications.
ABOUT IFC LAC SME FACILITY
IFC's Latin America and Caribbean Small and Medium Enterprise Facility, headquartered in Lima, Peru, promotes private sector development by supporting small and medium enterprises, thus contributing to job creation and poverty reduction in the region. It is a multidonor initiative backed by a $10 million commitment from IFC and an expected $20 million in donor contributions. Its areas of focus are strengthening SME competitiveness; making it easier for SMEs to do business by simplifying business regulations; broadening access to finance; and fostering indigenous and socially responsible enterprises.
ABOUT FIAS
The Foreign Investment Advisory Service (FIAS) was founded in 1985 as a joint service of the International Finance Corporation and the World Bank. As part of the Investment Climate Unit of the Private Sector Development Department, FIAS provides a wider perspective on how to assess and respond to investment constraints in the business environment. FIAS offers much more than one-way advice and written reports: through interactive workshops and roundtable meetings that often include business executives and other stakeholders, FIAS helps governments chart technically and politically practical paths to change. Creating a stable, neutral, and efficient environment for business can bring in new investment and improve the productivity of existing investment(s). Higher levels of investment and productivity are key to stimulating growth in developing countries and raising living standards.
