Honduras working towards freeing itself from the restraints of red tape

The environment where inclusive business activities take place is decided by policymakers. As a result, governments and international organizations play a pivotal role in the success of these business-led initiatives. For development-oriented business to be successful, support from political leaders and the establishment of optimum framework conditions are crucial.

A recent article in the Financial Times reports how the Honduran government is capitalizing on the potential of its informal economy by easing rules on licenses, with a view to speeding up the bureaucratic processes needed to formalize a business.

eExcerpts from the article:

• Over the past year or so, the mayor’s office in Tegucigalpa has reformed an antiquated registration process, reducing the number of procedures to obtain an operating licence from 180 to just 25.
• Many pitfalls remain but for the moment at least momentum seems on the side of reform. San Pedro Sula, a rapidly growing northern city that is a centre of the country’s maquiladora industry – which assembles imported parts for export – has already introduced many of the same reforms as Tegucigalpa, tripling the number of new businesses registered to 6,915 between 2006 and 2007.
• “The logic is simple,” says Ricardo Álvarez, the Tegucigalpa mayor. “If you have a permit it opens doors. You can get credit. At the end of the day you can grow.”

That being said, the article also warns that while it may have become easier to license a business, register property and borrow money in Honduras, “the country still has some way to go if it is to become truly friendly to business”, pointing most notably to the vested interests from lawyers and public notaries, who are involved at many stages of the business registration process.

Business environment priorities of the WBCSD-SNV Alliance

For its part, the WBCSD-SNV Alliance for Inclusive Business has identified the following three broad priorities in the context of its work in Latin America:

• The creation of an effective regulatory and legal framework to foster and uphold the rule of law – secure land tenure and property rights are critical, especially for low-income populations who are most likely to suffer in the absence of these conditions. Governments should enforce the law equitably, protect property rights, act transparently, enhance governance, provide assurance of a fair, independent judicial system and insist upon compliance with contracts.
• Support for small and medium sized enterprises (SMEs) – programs aimed at developing the capacity of local suppliers through training and technical assistance are essential to enable SMEs to develop their full potential.
• Investment in basic infrastructure – governments need to provide leadership and supervise projects throughout their lifecycle. They need to ensure that existing infrastructure is maintained and that all new projects benefit all sectors of the population, including those with limited economic resources.

The WBCSD and SNV acknowledge that framework conditions vary from one country to another and that policies must be adapted to each country’s priorities. Notwithstanding, in these three fields of action, they are the basis for a sound economy.

The Alliance works with business and societal stakeholders at the national level to identify the critical challenges and develop common advocacy messages to address them in a collaborative manner. A significant success has been the Alliance's collaboration with the Ecuadorian government (see case study), which resulted in the concept of inclusive business being into the national public policy agenda with a target to create a quarter of a million new jobs and a commitment of some US$ 90 million in public funds to co-finance projects.

Other articles discussing business environment issues:

• “Doing Business in 2008” report: Latin America fares poorly in terms of regulatory reforms
• An economic overview of Central America - Economic stability, foreign investment and growth potential
• Increasing competitiveness in Central America: progress made and next steps
• What can companies in Latin America do to help minimize the risk of corruption?

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We have a campaign on the informal economy in the UK, www.informaleconomy.org.uk. We believe in harnessing the skills of people working informally and cutting the red tape to enable them to make that transition. Please get in touch for more information