Disclaimer: This article was accurate at the time of publishing. To obtain the most up-to-date information, please get in touch with our local experts.
After shrugging off its reputation as an unstable place in which to do business, companies are beginning to view Bolivia as an attractive investment destination. But having local help on board is crucial in order to navigate the complex tax, legal and regulatory environment.
The implementation of new legislation regarding foreign investment has significantly improved Bolivia's international image as a place to do business. Luis Alberto Arce, the Minister of Economy and Public Finance, told the Financial Times that "the Bolivian Constitution recognises, respects and protects domestic and foreign investments. For this and other reasons, investors and private foreign companies genuinely have nothing to fear when investing in Bolivia."
In 2008 Bolivia was named the world's most entrepreneurial country by the Global Entrepreneurship Monitor (GEM, based in London), and the country has come to stand out next to its South American counterparts as being a good place to do business. In terms of GDP, the level of foreign investment in Bolivia (3.6%) is one of the largest in South America and higher than the average for Latin America and the Caribbean (approximately 2.7%). This growing trend reflects the confidence of foreign investors in Bolivia's economy.
But there are many barriers to growth for businesses unfamiliar with the investment climate. The 2013 Index of Economic Freedom has noted an erosion of investment freedom, labour freedom, and monetary freedom, and the World Bank and International Finance Corporation’s (IFC) report on ease of doing business was similarly critical of the business environment. Having local help is therefore crucial in order to successfully expose the country’s growth credentials and avoid the stickier patches.
Starting a Business
Establishing a corporate entity takes an average of 50 days to complete, costing 74.1% of income per capita. There are several government departments which must be navigated, including the Registry of Commerce, National Tax Service, the Municipal Government, the Chamber of Commerce or Industry and the Ministry of Labour. Most processes are heavily bureaucratic and burdensome.
Dealing with Construction Permits
Construction is an overwhelmingly lengthy procedure, which is typified by the permit process, which takes 249 days to complete. The most time-consuming aspects are obtaining the Cadastre Certificate and the "Traso Vial" and construction permits from the Municipality. However, getting the basic utilities can be an arduous task in itself, requiring several inspections and many days’ work.
Getting Electricity
Electrical connections cost almost double - as a percentage of income per capita - those of most other Latin American nations and many times more than the OECD average. There are eight procedures to complete, many of which are completed by the company itself, rather than a state-appointed board. Businesses are responsible for purchasing the material (distribution transformer, meter and current transformers) for the connection and obtaining an excavation permit, before submitting the official service application in writing and signing the supply contract.
Registering Property
Registering property is relatively inexpensive, but it can take over three months to complete. The procedure often gets caught up waiting for an architect of the Municipality to inspect the property and prepare the cadastral plan, and also waiting for the Real Estate Office to process the public deed.
Getting Credit and Protecting Investors
The legal rights index is underdeveloped in Bolivia, although it ranks relatively well on all other indices tracked by the World Bank and IFC. Investor protection, as highlighted above, is an area in which the government is looking to make major strides. However, Bolivia dropped three places in the 2013 rankings, suggesting there is still a lot more to be done.
Paying Taxes
The World Bank and IFC rank Bolivia in 180th place of the 185 economies they track for ease of paying taxes. There are 42 payments to be made each year which can take an average of 1,025 business hours to complete. Transaction levies and social security contributions require 12 payments each, as does VAT, which takes up the lion’s share of compliance requirements.
Trading Across Borders
Trading across borders is a timely and expensive process, not to mention the administrative hassle that accompanies the procedure. There are eight documents to compile when exporting and seven when importing, taking 19 and 23 days respectively.
Enforcing Contracts
Enforcing contracts takes an average of 591 days, with 40 procedures to complete. The cost of pursuing the claim is also far more expensive than the OECD norm.
Resolving Insolvency
Insolvency cases are by far the most streamlined aspect of doing business in Bolivia, taking 1.8 years to complete and returning a relatively good recovery rate.
Culture
Bolivians are formal in their business dealings, and it is always best to maintain a degree of professionalism, whether in negotiations or entertaining. Relationship building is a crucial component of the business process, so try not to be too regimental in your approach.
TMF Group
We have the local knowledge to help you navigate these minefields. Whether you want to set up in Bolivia or just want to streamline your Bolivian operations, talk to us.