states that make life easier for entrepreneurs

Four years after the sanction of the Economic Freedom Law (LLE) by then president Jair Bolsonaro (PL), economic freedom is still in its infancy in many parts of the country, especially in the North and Northeast regions. Brazil’s position remains poor in the main international rankings: it is 90th out of 165 countries, according to the Fraser Institute, from Canada, which released its economic freedom ranking on Tuesday (19).

Sanctioned on September 20, 2019, the LLE establishes a series of actions to reduce bureaucracy in business and make life easier for entrepreneurs and companies, especially small and medium-sized ones. It was one of the first major measures with a liberal bias prepared by the team of the then Economy Minister, Paulo Guedes.

In addition to reinforcing free market principles, the law provides for exemption from permits for low-risk activities; determines deadlines for bodies to respond to the entrepreneur’s requests; and seeks to limit the power of the State with the figure of “regulatory abuse”.

But, although in force at the federal level, the legislation still has a long way to go at the state and municipal levels, where there are some of the main obstacles to entrepreneurship.

A survey by the Liberal Institute of São Paulo (Ilisp) shows that, until last Tuesday, 16 of the 27 federation units and 995 of the 4,320 Brazilian municipalities with more than 5 thousand inhabitants had implemented measures to reduce bureaucracy and facilitate opening and the closure of companies.

Santa Catarina (with 66.8% of cities joining), Rio Grande do Sul (64%) and Espírito Santo (63.6%) are the states in which proportionally more municipalities adopted economic freedom initiatives (see full list at the end of this report). On the national average, only 23% of municipalities with more than 5 thousand inhabitants have joined so far. In 13 states, adherence does not reach 10% of cities.

Although states in the South and Southeast stand out among those that make life easier for entrepreneurs, there are exceptions in these regions as well.

Owner of the largest GDP in the country, the state of São Paulo approved economic freedom legislation, but has not yet regulated it. And only 12% of São Paulo municipalities have implemented rules that make life easier for entrepreneurs. Paraná has LLE at the state level, but only around 18% of its municipalities have approved their own legislation.

One state that did not create an LLE but implemented measures to reduce bureaucracy for companies was Bahia, which, in 2020, created an ordinance from the local Health Department to establish the classification of the degree of risk of economic activities subject to health licensing.

The Legislative Assembly of Maranhão even approved an economic freedom law, however, the proposal was vetoed by the state government in June. In the state, only 7% of municipalities with more than 5 thousand inhabitants have rules of this type.

Three cities with more than one million inhabitants still do not have LLEs: Goiânia (GO), Guarulhos (SP) and São Luís (MA).

The impact of economic freedom on the creation of jobs and companies

Since the entry into force of the LLE, according to Ilisp, with the adoption of this type of measure by states and municipalities, there has been an impact on the creation of jobs and the development of new companies in the country.

The entity’s study shows that, in the cities that approved the legislation, there was an average increase of 40.3% in the number of hires compared to the period before the law, much higher than the increase in the number of dismissals (24.8%), which which shows the creation of employment opportunities with a formal contract.

“The freedom to open and maintain a company in Brazil has increased in recent years, but we are still a bureaucratic country full of conflicting rules at the three levels of government”, says the institute’s CEO, Marcelo Faria.

Northeast and North concentrate states that did not pass economic freedom laws

Of the 11 states that have not yet approved the LLE, ten are in the North and Northeast. The low adherence of the states is reflected in the municipalities: those who approved measures to reduce bureaucracy in economic activities are a minority. In this group of ten states, only Rondônia has more than 10% of municipalities that approved the legislation.

In the Northeast, only Alagoas, Pernambuco and Piauí have an economic freedom law. The last state to implement a law of this type was Piauí. Approved on April 12th, it was regulated by state decrees on May 12th and August 7th.

Faria points out that a positive point in Piauí’s legislation is that it exempts the largest number of activities from the need for a license: 858 in total.

Another problematic region is the North. Only Pará, Roraima and Acre have state legislation on economic freedom. In Amapá, Amazonas and Acre, only one mapped city in each state has measures in this regard.

“It is impossible not to see that this scenario could make it very difficult to attract business to the region. It is essential that states and municipalities adopt the law with a view to facilitating business, generating more jobs, income and taxes for the whole of Brazil”, highlights the institute.

Brazil slides in the economic freedom rankings

Even with the advancement of economic freedom legislation in the country, Brazil is still not well positioned in the main international rankings on the topic. The most recent, from the Fraser Institute and referring to 2021, shows that the country is six positions above that recorded in 2020, and two below that of 2019. The highlight is the solidity of the currency (74th) and the worst indicator, the adjustment (133°).

Another important ranking, from the North American Heritage Foundation, shows that Brazil is in 127th position in a ranking of 176 countries.

Over the last four years, the Brazilian score has fluctuated around 53.5, on a scale that goes from zero (no economic freedom) to 100 (total economic freedom). This places the country among those most without economic freedom. The country’s worst score is in fiscal health and the best in monetary freedom.

Economic Freedom Act by state

Check below the states that have or have not approved their economic freedom laws, and the percentage of municipalities (with more than 5 thousand inhabitants) that have implemented local measures:

*São Paulo approved LLE, but has not yet regulated it.
**Bahia only has flexibility for Health Surveillance.
Source: Ilisp