Improving business regulations at the subnational level for a faster and sustainable recovery in Mexico

Endless procedures, unnecessary burdens and uncertainty about which regulations apply to their business activities and how to comply with them. These are the answers from many businessmen when they are asked about the barriers to conduct business.

In Mexico, only in 2016, businesses reported having 76.5 million administrative procedures with the government, according to official data. The average per business was 20 procedures per year. The bigger the business, the higher this number, reaching levels of up to 67 transactions per year.

Between 2019 and 2020, the regulatory burden or cost to comply with government regulation in Mexico represented about 3.4% of GDP,  according to data from the National Commission of Better Regulation (CONAMER). This figure only reflects federal regulation. When subnational regulation from states and municipalities is accounted for, the economic cost from regulation in Mexico is much higher. On average, the regulatory burden in states represent 1.3% of their GDP. For municipalities, this number is 3.4% of their local economy.

This is why it is also important to adopt a better regulation policy at the subnational level, even more in COVID-19 times, for a faster recovery from the economic crisis through growth, investment and job creation led by the private sector.

Source: National Commission of Better Regulation, CONAMER.

But, what does better regulation implies?

Better regulation requires governments to adopt a public policy, ideally backed-up by a legal mandate, which defines the institutions, principles, tools and guidelines that the government should follow when producing new regulations or reviewing current ones.

The German politician, Otto von Bismarck said that “laws are like sausages, it's is best not to see them being made.” What better regulation does is to adapt rules to keep up with current technological progress, and to bring transparency, predictability, public participation and use of evidence to the regulatory process, so it inspires trust and give certainty to businesses, investors and citizens.

Better regulation in Mexico

In 2018, Mexico passed a General Law of Better Regulation with the objective of establishing principles, foundations, and requirements for it to be adopted at the three levels of government: federal, state and municipal. The law put Mexico at the forefront in this field. Its guidelines represent international good practice, even among OECD countries.

The law requires the national and subnational governments to apply tools that improve the planning, design and development, implementation, and evaluation of regulation in the country.

On this regard, CONAMER, with the technical assistance of the World Bank and financial support from the United Kingdom’s Foreign, Commonwealth & Development Office (FCDO), is developing a National System of Regulatory Governance (SINAGER). As an electronic platform, SINAGER will help states and municipalities in Mexico to manage their regulatory cycle, ensuring that new and existing regulation comply in the most effective and efficient way their public policy objective. 

Through SINAGER, states and municipalities will be able to implement tools such as the regulatory agenda or forward planning; ex ante Regulatory Impact Analysis (RIA); administrative simplification programs; ex post Regulatory Impact Analysis (ex post RIA); and public consultation with businesses and citizens in each of these phases.

A long way to go

Even when there are many states and municipalities with important progress since the General Law was approved in 2018, only a few have stared their journey to improve their regulations.

According to the National Observatory of Better Regulation, which keeps track of this policy’s progress in federal, state and municipal governments in Mexico, in 2019, the federal government recorded a progress of 86% , while states and municipalities advanced by 51% and 29%, respectively.

Regarding the implementation of better regulation tools, like those that are part of SINAGER, results are more limited: states have had progress of 36%, while municipalities only 18%.

Source: National Observatory of Better Regulation (ONMR), with data of 2019.

* Progress is measured in three pillars. Policy: regulatory framework that backs-up the better regulation policy. Institutions: institutional strength of authorities and government bodies responsible to implement the policy. Tools: Offering of instruments and/or services o the public to comply with administrative procedures and improve regulation in the most optimal way.

There is a long way to go at the state and municipal level. SINAGER is a digital tool available for free, which will help to build and strengthen the capacity of state and municipal governments to improve their regulatory environment  and make it more favorable to business productivity and competitiveness, and more attractive to investors and entrepreneurs.

Carlos Felipe Jaramillo, the World Bank’s vice president for Latin America and the Caribbean, says that the current crisis from the pandemic is an opportunity to leave behind traditional procedures and limitations. 

A poor regulatory environment is one of those limitations that governments should leave behind if they aim for a faster and sustainable economic recovery.