Doing Business in Vietnam vs. Spain:

After a recent trip to Vietnam, and given that I have never been in China, I was shocked to witness the growth potential from the region.

Comparing Vietnam with my experience in Cuba ten years ago, what I found was not as close to a communist country as I could have expected. Free market was open in any Vietnamese street in big cities and, surprisingly enough, The Financial Times and Warren Buffet’s biography could be easily found in local news agents. This used to be completely banned in Cuba at least ten years ago and I suspect that it may still be.

What I saw was a very young population eager to progress and able to combine their ancient traditions with the latest hi-tech gizmos and western style. But as usual, l will provide you with some fact-based analysis and will compare how easy or difficult it is doing business in Vietnam vs. Spain based on the Doing Business reports from The World Bank.

Doing Business sheds light on how easy or difficult it is for a local entrepreneur to open and run a small to medium-size business when complying with relevant regulations. It measures and tracks changes in regulations affecting 11 areas in the life cycle of a business: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and employing workers. The numbers considered for the analysis are the ranking positions of each country out of a total of 185 economies from Afghanistan to Zimbabwe (for more data details, see www.doingbusiness.org).

As we will see, there is still as much room for improvement for one country as for the other.

A.      Doing Business in Vietnam:

In the following table , we compare how Vietnam performs in the aforementioned categories compared to the regional average (East Asia & Pacific). On average, we see how Vietnam underperforms by 14% compared to its peer countries. In fact, the biggest concern to any entrepreneur in Vietnam should be “investor’s protection” and “getting electricity”. Access to reliable corporate data and as access to reliable and affordable electricity is vital for businesses. However, Vietnam is outperforming its peers in important areas such as “dealing with construction permits” and “getting credit”.

B.      Doing business in Spain:

  

Following the same methodology as of Vietnam, we can see how Spain underperforms by a 27% compared to the regional average (OECD high income). It is extremely worrying to realize how difficult it is to start a business in Spain, as it ranks 136 out of 185 countries. “Enforcing contracts” and “protecting investors” are the next worse categories in which Spain should really focus to become an attractive economy to investors.

C.      Doing business in Vietnam vs. Spain:

The following comparison is not purely academic as it could be easily argued that we are comparing oranges and apples. However, the exercise is interesting as we can see how a rich country such as Spain underperforms Vietnam in as much as 5 categories out of 11. In other words, doing business in Vietnam it is easier than in Spain in 45% of the total categories considered to determine the ease of doing business in an economy.

Overall, we see how Spain’s average position is 61, compared to Vietnam’s average position 95. However, as stated above, Vietnam outperforms Spain in “starting a business”, “dealing with construction permits”, “registering property”, “getting credit” and “enforcing contracts”. Although the differences in these categories are not too significant, Spain should seriously consider making things easier to entrepreneurs and get rid of much of the red tape needed. Another striking fact is that it is easier to enforce contracts in a communist country such as Vietnam than not in Spain.

This is not a complete analysis as we are only considering the ranking positions and disregarding the causes of such differences, be them political, geographical or economical. However, it seems quite clear that today, Spain is not the best (or at least the easiest) place to start a business.  And in a time when unemployment is at historical records, it is a shame that households cannot access to credit, get rid of bureaucracy and start a business with enough assurance regarding their property and interest.

We do need big corporates such as Inditex or Telefonica. But right now, what Spain is in desperate need of is small and medium-sized successful enterprises able to boost employment and consumption.

Sources:

“Doing Business 2013: Smarter Regulations for Small and Medium-size Enterprises”

“A heavy load” The Economist August 31st 2013

www.doingbusiness.org

http://www.worldbank.org/