Using the Doing Business Methodology in the Estado do Rio de Janeiro

Transcription

1 Using the Doing Business Methodology in the Estado do Rio de Janeiro Joaquim V. F. Levy Secretaria Estadual de Fazenda - RJ April

2 Estado do Rio de Janeiro, land of diversified business Rio de Janeiro, financial and historical center P 40 oil platform on her way to Rio de Janeiro Rio de Janeiro, PROJAC TV& movie studios 2

3 Rio de Janeiro, a player in the local and global economy Área (km²) Population GDP (US$ billion at official exchange rate) Rio de Janeiro ,2 140,0* Czech Republic ,9 Portugal ,6 Belgium ,8 Chile ,8 Colombia ,5 Venezuela ,9 Source: CIA Yearbook (does not reflect recent GDP revision) * GDP from state statistical bureau CIDE ERJ, as does the typical US state, faces tax competition within the country Estado do Rio de Janeiro -ERJ canbeviewedas a small open economy State GSP Rank Florida: $594,525,000, #4 New Jersey: $415,891,000, #8 Tennessee: $216,939,000, #18 Connecticut: $187,086,000, #23 Louisiana: $151,993,000, #24 Kentucky: $135,412,000, #26 South Carolina: $135,253,000, #27 Oregon: $128,126,000, #28 Iowa: $114,269,000, #29 Kansas: $99,090,000, #32 Mississippi: $76,205,000, #35 Delaware: $54,500,000, #40 Maine: $43,279,000, #45 Montana: $27,701,000, #49 3

4 Estado do Rio has a strong industrial and export base Top World Oil Producers, 2005* Total Oil Production Rank Country (million barrels per day) 5) Mexico 3.8 7) Canada 3.1 8) Norway 3.0 9) UAE ) Venezuela ) Kuwait ) Nigeria ) Algeria ) Brasil 2.0 Rio de Janeiro 1.7 Steel Production (thousand of tons) State January 2007 Semi-finished share Processed share MINAS GERAIS 955,8 35,4 861,0 34,9 SÃO PAULO 586,1 21,7 521,7 21,2 ESPÍRITO SANTO 510,4 18,9 469,7 19,0 RIO DE JANEIRO 477,8 17,7 444,7 18,0 TOTAL 2.703,3 100, ,7 100,0 Fonte: IBS Production capacity of semifinished steel is expected to double to 16 M ton/year by 2012, allowing Rio to become the top steel maker in Brazil Exports in US$ billion Rio de Janeiro BRAZIL % share , , , , Exports of Estado do Rio de Janeiro US$ Billion

5 Rio s economic activity is being spread throughout the state Region R$ Million 2005 GDP Eur Million (R$ 2,74/Eur) Share Growth 2005/ GDP per Capita R$ Eur (R$ 2,74/Eur) Estado ,0% 4,9% Metropolitan Area ,5% -0,2% Paraíba Industrial Valley ,4% 22,7% North ,4% 12,7% Highlands ,7% 1,0% North Coast ,2% 11,3% Green Coast (Angra) ,3% -4,2% Central South ,8% 2,6% Northwest ,7% 9,2% Offshore (oil & gas) ,1% 14.9% Source: Fundação CIDE Resende Peugeot Porto Real Galvasud Porto Real 5

6 Planned or Underway Selected Recent Investments Petrobras Refinery (COMPERJ) US$ 6,5 billion through 2010 for basic unit (phase I). It will process 150 Mbb/day, producing diesel, ethylene, propylene, benzene, butadiene in the first phase; second phase (US$ 6 billion additional investment) to produce polyethylene, PET, PTA, ethylene-glycol and styrene. Petrobras: U$ 26 billion in oil and natural gas R&D and production CSA: Companhia Siderúrgica do Atlântico (Thyssen-Krupp) - US$ 3,5 billion. Steel production for export as of 2009 GERDAU: US$ 1 billion Special Steels ; Votorantim Metais (Siderúrgica Barra Mansa): US$ 600 million CSN II: US$ 2,5 billion Steel Production for domestic and export markets Porto Açu Bulk Terminal in the North providing new outlet for minerals from Minas Gerais Tourism a new generarion of resorts with beatiful beaches and plenty of privacy Recently Concluded Rio Polímeros: US$ 1,2 billion (2/3 private sector) already producing 500,000 ton/year of ethylene, 75,000 ton/year of propylene, and 540,000 ton/year of polyethylene products Michelin: US$ 500 million for new tire plant Leader in off-road tires; VW Caminhões: leader in truck production in Brazil and in productivity worldwide; Peugeot Citroën: Top among entrants after 1990, holding 6% of domestic market Galvasud (steel lamination for auto industry, etc.); Guardian (flat glass maker); Schulz e Weelstream (products for the oil industry), RioCim (cement) Shipyards: investments to supply the oil industry boosted sales tenfold from 2000 to R$ 4 billion in 2005; new orders of tankers from Petrobras will further boost the sector; new shipyard in the North (norwegian capital). Beverages: five new plants, of which the one built by AMBEV is the largest plant in the Américas 6

7 Steady job creation with a strong service sector Jobs created in the last five years GDP by sector Agriculture 0,5% Total Services Commerce Industry Industry (incl. Oil) 50,2% Services (incl. Comm) 44,8% (Fin. Dummy) -4,0% Taxes 8,5% GDP at current prices 100,0% Share of value added (2003) Source: IBGE Telcomm Hub and Convention Center 7

8 Widespread Availability of Services and Equipments ** Electricity Fixed phone Frig Washing Machine TV 10 0 Own PC Use the Internet Own cell phone ** Proportion of people aged 10 or more with access to service or owing the equipment Rio de Janeiro, capital of advanced studies Students enrolled by school level Pre-School Elementary and Middle School High School University 98% enrollment at ages 7-14; 88% ages State Institutions Federal Institutions Private Institutions University enrollment by type of institution 8

9 Rio hosts a diversified financial center featuring: Securities Exchange Regulator Insurance Regulator Central Bank open-market desk National Association of Financial Institutions SELIC National Development Bank Treasury and Brokerage operations of Banco do Brasil Major Pension Funds Agile banks: BBM, key business lines of UBS/Pactual Top hedge funds (Gavea and many others) Leading Insurance Companies (Icatu-Hartford, Sul America, Bradesco) and IRB Brazil Re

10 A sour spot: crime and homicides Homicides in selected cities Murders/100,000 people (2003) Rio de Janeiro (2006) 57 Washington D.C. 46 Detroit 42 Baltimore 38 Chicago 22 Johannesburg (2001) 75 Moscow (2003) 20 Memo: Suicide Rates Country Year Males Females AUSTRALIA BELGIUM BRAZIL CZECH REPUBLIC GERMANY REPUBLIC OF KOREA RUSSIAN FEDERATION UNITED KINGDOM USA Homicides in selected countries COUNTRY Murders/100,000 people Brazil 27 Colombia 63 South Africa 51 Jamaica 32 Venezuela 32 Russia 19 Mexico 13 United States 4 Czech Republ. 1,7 United Kingdom 1,7 Germany 1,1 10

11 Using Doing Business is part of a strategy to further enhance the competitiveness of the Estado do Rio de Janeiro Tax pressure e policy Expenditure policy Regulatory environment Making life easier Volta Redonda Steel Mills

12 Tax Policy: Royalties and Taxation Revenues in millions of reais Royalties as % of State VAT Other Outras Revenues Receitas Other Outros Taxes Tributos VAT FECP Surtax ICMS VAT Overall revenues have been increasing, owing mainly to economic growth and oil revenues (royalties); State VAT (ICMS) has been less buoyant, despite surtaxes on telecom and electricity, which were introduced in 2003 and are candidates for review % 40,0 35,0 30,0 25,0 20,0 15,0 10,0 5,0 0,

13 Taxes: State VAT tax pressure in selected Brazilian states Distrito Federal São Paulo 150% AVG Brazil Rio de Janeiro = 100% Rio de de Janeiro 100% Rio Grande do Sul 50% Paraná Santa Catarina Bahia Pernambuco Minas Gerais ICMS/GDP ICMS/HH_income ICMS/POP ICMS/KWh

14 Tax Policy: relative state VAT ICMS tax pressure (RJ=100) 180% 160% 140% 120% 100% ICMS/GDP ICMS/HH_income ICMS/POP ICMS/KWh 80% 60% 40% AVG Brazil Rio Grande do Sul Santa Catarina Minas Gerais Pernambuco Bahia Rio de Janeiro Distrito Federal

15 Expenditure Policy: taming payroll outlays Spending in personnel (R$ million) Share of pensions in state payroll EXECUTIVO * Outros Poderes EDUC SEGR OUTR EXEC OUTR PODERES PREVI-BANERJ Inativo & Pens. Ativo Payroll expenditure of both the Executive and the other government branches (Justice and Legislative) has grown in recent years, reducing the ability of the state to provide services and finance investment

16 Regulation: Investment & Competitiveness Targeted investment in infrastructure: complete current projects, articulate local authorities and leverage the private sector; Integrate public transportation, which is run by the private sector, to unlock new real estate opportunities and increase workers productivity (WB support has been pivotal); Implement a logistic hub to fully benefit from the beltway under construction (Arco Rodoviário) and foster the development of a distribution chain offering accessible transfer and processing areas in the metropolitan area (Baixada Fluminense) Itaguai Terminal Supervia Mass Transportation Network 16

17 The Rio de Janeiro Beltway and Logistics Hub Baixada Fluminense Logistic Interland Road to São Paulo Road to Minas and Brasilia Rio Polimeros and Caxias Petrochemical Plant and Refinery Road to Bahia MODERN CONTAINER TERMINAL New Thyssen Steel Mill International Airport New Petrochemical COMPERJ Plant 17

18 The private sector: engine for the revitalization of green energy production areas Sugarcane field * Automated harvest * Distillery Storage Tanks* Traditional sugarcane fields to be revitalized Distillery with Cogeneration Plant* * Illustrative pictures, not necessarily taken in ERJ Potential to double planted area to up to 1 million acres Automobile Ethanol Fuel*

19 How can Doing Business help develop business in the Estado do Rio de Janeiro 1) Understand the main features of the measure and how Brazil and the State are ranked 2) Find the changes with greater potential to improve business conditions and pick priorities 3) Find out who the agents for change are and how they can cooperate 4) What has been done in the first three months of government and what comes next

20 1) How can Doing Business help: understanding DB ARG CHL COL MEX CHN RUS IND ZAF TUR PHL BGR CZE AUS DEU ESP Relative position of Brazil in the DB rank vis-a-vis selected countries KOR LA BRICS EM OECD Placed as 121th in the DB rank, Brazil could look as a quite complicated place to do business, despite its Trillion-Dollar economy

21 1) Understanding DB 0,60 0,40 0,20 ARG 0,00 CHL COL MEX -0,20-0,40-0,60 START LICENSES EMPLOY REG_PROP CREDIT PROT_INVST TAXES TRADE ENFORC CLOSE CHN RUS IND -0,80 Surprisingly, Brazil is heavily penalized in the investment protection and asset recovery components

22 1) Understanding DB Recte Rempublican Gerere Bankruptcy is common in Brazil: a major reform in 2004 has eased the process, aligned incentives and changed claimant seniority to foster credit to companies; The Brazilian stock exchange is well established and has a strong focus on corporate governance: most IPOs are now made under quite stringent governance rules and foreign investors are major players; Foreign investors in Brazil have never been expropriated and are free to send profits back; Aligning Brazilian indicators in these two areas would have a distinct impact in the rank of Brazil: Current rank: 121 Aligned rank: 90-95

23 Code RANK Percentile Disclosure Index 1) Understanding DB Director Liability Index Protecting Investors Shareholder Suits Index Investor Protection Index Recte Rempublican Gerere g of protecting investors (percentile Closing a Business Recovery rate (cents on the dollar) Ease of closing a business (percentile) BRA 121 0, ,3 0,5 12,1 0,77 BRA * 93 0, ,5 0,1 30,0 0,44 BRA ** 80 0, ,5 0,1 50,0 0,17 ARG 102 0, ,7 0,7 36,2 0,33 CHL 28 0, ,3 0,2 20,0 0,62 COL 79 0, ,0 0,3 57,7 0,14 MEX 43 0, ,0 0,3 63,2 0,14 CHN 94 0, ,0 0,6 31,5 0,43 RUS 97 0, ,3 0,5 28,7 0,47 IND 134 0, ,0 0,3 13,0 0,77 ZAF 29 0, ,0 0,1 34,4 0,37 TUR 91 0, ,3 0,5 9,8 0,79 CZE 52 0, ,0 0,6 18,5 0,65 AUS 8 0, ,7 0,3 79,7 0,06 DEU 21 0, ,0 0,6 53,1 0,16 KOR 23 0, ,3 0,5 81,8 0,06 Know BEST Brazilian Excellence in Securities Trading

24 1) Understanding DB Brazil fares poorly in items involving red tape Recte Rempublican Gerere BRA ARG CHL COL MEX CHN RUS IND ZAF TUR PHL BGR CZE Starting a business 0,56 0,54 0,27 0,47 0,37 0,60 0,27 0,47 0,36 0,35 0,55 0,46 0,42 Dealing with Licenses 0,69 0,63 0,32 0,41 0,26 0,73 0,80 0,75 0,34 0,71 0,60 0,69 0,60 Registring Property 0,61 0,46 0,27 0,38 0,47 0,21 0,33 0,57 0,45 0,37 0,53 0,43 0,40 Employment Rigidity 0,48 0,61 0,35 0,41 0,50 0,41 0,43 0,51 0,43 0,65 0,53 0,48 0,29 While employment regulations are typically national, licensing and registring regulations are local

25 2) How can Doing Business help: picking priorities Improvements in any of the start/license/register items would deliver important improvements to business conditions (and hopefully move Brazil up in the DB ranking) Starting a Business Dealing with Licenses Registering Property Code RANK Percent. Procedures number Time (days) Ease of starting a business percent. Procedures number Time (days) Cost (% of income per capita) Ease of dealing with licenses percent. Procedures number Time (days) Ease registerp roperty percent. BRA 121 0, , % 0, ,61 BRA* 109 0, , % 0, ,61 BRA* 109 0, , % 0, ,61 BRA* 109 0, , % 0, ,61 BRA* 109 0, , % 0, ,30

26 2) Picking priorities Recte Rempublican Gerere Reductions in steps and delays would bring BRA closer to peer countries Starting a Business Dealing with Licenses Registering Property Cost (% of income per capita) Min. capital (% of income per capita) Ease of starting a business percent. Cost (% of income per capita) Ease of dealing with licenses percent. Cost (% of property value) Ease registerp roperty percent. Code RANK Percent. Procedures number Time (days) Procedures number Time (days) Procedures number Time (days) BRA 121 0, % 0% 0, % 0, ,03 0,61 BRA* 109 0, % 0% 0, % 0, ,03 0,61 BRA* 109 0, % 0% 0, % 0, ,03 0,61 BRA* 109 0, % 0% 0, % 0, ,03 0,61 BRA* 109 0, % 0% 0, % 0, ,03 0,30 ARG 102 0, % 6% 0, % 0, ,32 0,46 CHL 28 0, % 0% 0, % 0, ,30 0,27 COL 79 0, % 0% 0, % 0, ,48 0,38 MEX 43 0, % 13% 0, % 0, ,24 0,47 CHN 94 0, % 213% 0, % 0, ,10 0,21 RUS 97 0, % 3% 0, % 0, ,30 0,33 IND 134 0, % 0% 0, % 0, ,80 0,57 ZAF 29 0, % 0% 0, % 0, ,91 0,45 TUR 92 0, % 19% 0, % 0, ,20 0,37 PHL 126 0, % 2% 0, % 0, ,74 0,53 BGR 55 0, % 91% 0, % 0, ,32 0,43 CZE 52 0, % 37% 0, % 0, ,01 0,40 AUS 8 0, % 0% 0, % 0, ,84 0,24 DEU 21 0, % 46% 0, % 0, ,53 0,32 ESP 38 0, % 15% 0, % 0, ,15 0,29 KOR 23 0, % 300% 0, % 0, ,32 0,44

27 2) Picking priorities Recte Rempublican Gerere Addressing all formalities complexity together would deliver strong results Country RANK percent. # proced Starting a Business Dealing with Licenses Regist. Propr. Time (days) Index Starting # proced Time (days) Index License # proced Time (days) Protec. Invest Coef. Invest. Protec. Closing Recov. Rate (c/$) BRA 121 0, , , ,09 BRA 79 0, , , ,09 BRA 50 0, , , ,00 BRA 48 0, , , ,00 Reducing the hurdles to start a business, deal with licenses and register property could put Brazil among the 80 easiest countries to do business; If the investor protection and recovery rate indexes are aligned, addressing these areas together would put Brazil among the 50 easieast countries to do business.

28 3) How can Doing Business help: finding agents of change Main players in the Estado do Rio de Janeiro: Registering Office (Junta Comercial) at the Economic & Development Secretary Notaries and the Judicial System Federal Government (Federal Revenue Service in particular) and Municipalities Multilateral Institutions and the Private Sector

29 3) Agents of change Junta Comercial: Art. 43 of Law Nº 8.934, of Nov/18/1994 establishes the maximum period of 10 working days for registring complex cases and 3 days for registring the simple ones. 42,285 companies were created and 10,349 closed in Brazil in Jan-March 2007 State Creation Change Closing Total São Paulo Minas Gerais Paraná Sul Rio de Janeiro Santa Catarina Bahia Federal Pernambuco BRAZIL

30 4) How can Doing Business help: what has been done since the beginning of 2007 Cadastro Único : Joint program with Federal Revenue to provide one single registration number at federal, state, and municipal levels: protocol signed on January 19, 2007 System will save time, by eliminating the back and forth between the Registering Office (Junta), the State Finance Secretary and the Federal Revenue, which can take two weeks or more: by exchanging information, all the required checks will be done at once and applicant promptly oriented as needed.

31 4) What has been done since the beginning of 2007 Improving the Paying Taxes component: Acceleration of judgment of administrative tax disputes, with full staffing of and new resources to Taxpayer Tribunals (Conselho de Contribuintes e Junta de Revisão Fiscal) Close cooperation with General Attorney and Courts, to accelerate the resolution of judicial disputes and the payment of court decisions against the government (precatorios) Creation of specialized sectoral tax offices Preparation of public admission contest ( concurso ) for 70 tax auditors before year end Considering reducing VAT surtax on Electricity and Telecomm

32 4) What has been done since the beginning of 2007 Making registration of real estate simpler: This reform, although not directed to the business sector, shows what can be done to simplify life and reduce waste: As of January 2007, the registration of changes in real estate ownership was exempt from being cleared by courts in the case of friendly divorces or inheritances; Regulation on how to assess the property value and apply to tax payments before going to the notary was issued the Secretary of Finance and the State General Attorney in a matter of days; Integration with municipal databanks to automate property value assessments, currently under way, is likely to cut the time to register property in the state capital (Rio) to just a few weeks.

33 4) What is next Recte Rempublican Gerere Resume investments and energize partners: The Cadastro Único will require financial and human resources to be implemented quickly: approaching BNDES A team of IT experts has been put in place and is working with consultants to review most practices at the General Revenue Office and close gaps existing in the IT area (as indicated also by the External Auditing State Office TCE) Conversations have begun with the World Bank Brazilian team to help the Junta Comercial and to find additional resources and select projects focused on reducing steps and the time required to open/close/change companies

34 Thank You Teresópolis Niterói Campos Costa Verde 34

35 Rio de Janeiro, the most pleasant place to work 35