VZCZCXRO4906
PP RUEHRG
DE RUEHSO #0685/01 1711228
ZNR UUUUU ZZH
P 201228Z JUN 06
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 5285
INFO RUEHBR/AMEMBASSY BRASILIA 6384
RHEHNSC/NSC WASHDC
RUCPDOC/USDOC WASHDC 2489
RUEHRC/USDA FAS WASHDC 0617
RUEHMN/AMEMBASSY MONTEVIDEO 2036
RUEHBU/AMEMBASSY BUENOS AIRES 2309
RUEHSG/AMEMBASSY SANTIAGO 1765
RUEHLP/AMEMBASSY LA PAZ 2863
RUEHPE/AMEMBASSY LIMA 1022
RUEHCV/AMEMBASSY CARACAS 0343
RUEHBO/AMEMBASSY BOGOTA 1405
RUEHRG/AMCONSUL RECIFE 2991
RUEHRI/AMCONSUL RIO DE JANEIRO 7198
RUEHAC/AMEMBASSY ASUNCION 2633
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RHMFISS/CDR USSOUTHCOM MIAMI FL

UNCLAS SECTION 01 OF 02 SAO PAULO 000685 
 
SIPDIS 
 
DEPT FOR WHA/BSC, WHA/EPSC, EB/IFD 
STATE PASS TO USTR FOR MSULLIVAN 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR MORONESE, RIVERA, MERVENNE 
NSC FOR SUE CRONIN 
USDOC FOR 4332/ITA/MAC/OLAC 
USDOC FOR 3134/USFCS/OIO 
TREASURY FOR OASIA, DAS LEE AND FPARODI 
DOL FOR ILAB MMITTELHAUSER 
SOUTHCOM ALSO FOR POLAD 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON EINV PGOV ETRD BR
SUBJECT: BRAZIL TRAILS IN WORLD BANK'S "DOING BUSINESS" RANKINGS 
 
 
¶1. SUMMARY:  Brazil ranked 119th among 155 countries in the 
International Finance Corporation's (IFC) Doing Business rankings, 
published by the World Bank.  Brazil fared worst in its labor, tax, 
and bankruptcy rankings.  Unless addressed, doing business in Brazil 
may be viewed more in terms of its costs, than its benefits.  END 
SUMMARY. 
 
UN-DOING BUSINESS? 
------------------ 
 
¶2. UNFLATTERING FIGURES:  Concerned about their performance in 
comparison to India, China, and other large developing countries, 
many Brazilians were surprised that the IFC study showed Brazil as 
more corrupt than China, and its judicial system as worse than 
India's.  The report warned that corruption, the onerous tax burden, 
and high interest rates were the main obstacles to Brazilian 
development.  Brazil ranked very poorly in its labor, tax, and 
bankruptcy practices. 
 
WHAT THE NUMBERS SAY 
-------------------- 
 
¶3. THE IFC TOP TEN:  The IFC's Doing Business Ranking evaluated ten 
indicators and compared Brazil's results with the average 
performances of Latin America (LA) and members of the Organization 
of Economic Cooperation and Development (OECD). 
 
-- STARTING UP A BUSINESS (RANKED 98/155):  Entrepreneurs in Brazil 
can expect to go through 17 steps to launch a business over 152 days 
on average, compared to an average of 63 days among LA countries, 
and an average of 19 days in OECD countries. 
 
-- DEALING WITH LICENSES (RANKED 115/155):  In Brazil it takes 19 
steps and 460 days to complete the licensing process (LA countries 
average 206 days, OECD average 146), at a cost of 184.4 percent of 
income per capita. 
 
-- HIRING AND FIRING WORKERS (RANKED 144/155):  Brazil is heavily 
criticized in terms of difficulty of hiring, difficulty of firing, 
rigidity of employment, hiring cost, and firing costs.  Firing costs 
(measured in weekly salaries) averaged 63 salaries in LA and 35 
salaries in OECD countries, whereas in Brazil, the cost of firing an 
employee is a mammoth 165 weekly salaries. 
 
-- REGISTERING PROPERTY (RANKED 105/155):  In Brazil, it takes 15 
steps (compared to seven in LA countries and five in OECD countries) 
and 47 days to register property.  The cost to register property is 
four percent of overall property value. 
 
-- ACCESS TO CREDIT (RANKED 80/155):  Brazil is heavily criticized 
for policies that inadequately restrict access to credit.  [NOTE: 
Real interest rates in Brazil are currently above 10 percent, among 
the highest in the world.  END NOTE.] 
 
-- PROTECTING INVESTORS (RANKED 53/155):  Brazil is criticized for 
inadequate transparency of transactions (extent of disclosure), 
liability for self-dealing, shareholders' ability to sue officers 
and directors for misconduct, and weak investor protection laws. 
 
-- PAYING TAXES (RANKED 140/155):  Entrepreneurs in Brazil must make 
23 payments (versus 16 in OECD countries), spend 2,600 hours of 
tax-related preparation (compared with 530 hours in LA countries and 
197 in OECD countries), and pay 147.9 percent of gross profit in 
taxes (compared with 52 percent in LA countries and 45 percent in 
 
SAO PAULO 00000685  002 OF 002 
 
 
OECD countries). 
 
-- TRADING ACROSS BORDERS (RANKED 107/155):  Brazil is criticized 
for its cumbersome import and export procedures.  For example, 16 
signatures are needed to import merchandise (versus three in OECD 
countries), and importation takes an average 43 days to process 
(versus 14 days in OECD countries). 
 
-- ENFORCING CONTRACTS (RANKED 70/155):  It takes 24 steps and 546 
days to enforce contracts in Brazil.  The cost of enforcing 
contracts is 15.5 percent of debt. 
 
-- CLOSING A BUSINESS (RANKED 141/155):  In Brazil, it takes 10 
years on average to close a business (compared to 3 years in LA 
countries and 1 in OECD countries) at a cost of 9 percent of the 
estate value.  The recovery rate, expressed in terms of how many 
cents on the dollar claimants recover from an insolvent firm, is 
0.49 percent, less than a measly half cent per dollar (compared with 
28 cents per dollar in LA countries and 74 cents per dollar in OECD 
countries). 
 
COMMENT 
------- 
 
¶4. "O CUSTO BRASIL:" Taken together, these factors are frequently 
referred to as the "custo Brasil" or Brazil cost.  Sadly, these 
factors do more than merely complicate doing business in Brazil, 
they are also frequently cited as the key factors stifling GDP and 
investment growth retarding competitiveness, and discouraging 
foreign direct investment.  Brazilian business leaders, economic 
analysts and some government figures worry that failure to reduce 
the "custo Brasil" will mean a loss of markets and investment to 
India and China, which are posting consistent gains in exports, GDP 
growth, and FDI.  END COMMENT. 
 
¶5.  This cable was coordinated/cleared with Embassy Brasilia. 
 
MCMULLEN