Trimming Red Tape

How difficult is it get a decent haircut in Tegucigalpa? Not nearly as difficult as it used to be, at least according to an article last month in the FT. Over the past year, the capital of Honduras has seen a drop in the number of procedures required to obtain an operating license for a business from 180 to 25 - in other words, from absurd to manageable. This reform has allowed Carlos Vañegas, a former army sergeant, to open up his own barbershop and obtain a loan to equip his establishment. In his own words:

It took a few hours to do all the paperwork...I don't think we would have opened had it been like it was.

And Mr. Vañegas is not the only one benefitting from such reforms. According to the article, the number of registered businesses has leaped from 22,000 to 34,000 between 2005 and 2008. Coupled with increasing liquidity in the Honduran banking sector, the formalization of businesses has permitted many owners to obtain loans to expand their services.

The FT notes that at least part of the impetus for these reforms have come from IFC's work on Doing Business:

...the IFC has begun to work with 184 local governments in 10 Latin American countries, including three of the poorest, Bolivia, Nicaragua and Honduras. Again, a score chart helps mayors and governors measure their progress against peers.

Between 2007 and 2008, Honduras moved up five places in the Doing Business rankings, from 126 to 121. According to the 2008 data, it takes 21 days to open a business in Honduras, compared to an average of 68 days for Latin America. Perhaps if it keeps up the good work, it could join the Reformers' Club in the next few years!