Formalization Process

March 31st, 2008 Piura, Peru

The Formalization Process

In order to sell our dried fruit in supermarkets, we have to formalize our business and obtain a health certificate. We originally planned to do this through the regional government with the help of the Program for Social Aid because they offered us a discount on the excruciatingly high fees and general consultancy. Since they have been even more bureaucratic than the average Peruvian government employee, we have elected to seek formalization without their help. Today we completed the first step by registering our business name.

In the States, I formalized a small business I had in less than a day and for the small sum of $15. To do so in Peru would take several several months and cost upwards of $300. That is a sum almost equal to the national GDP per capita. Therefore, more than 50% of the Peruvian economy is informal and underground. Hernando de Soto, coincidentally a Peruvian author, is one of the foremost experts on Third World economics and argues in his renown book, The Mystery of Capital, that the main reason developing countries take so long to catch up to their rich neighbors is because their governments are plagued with corrupt bureaucracy and do not offer their citizens property rights or the ability to establish themselves as creditworthy and thus access to capital. Although the book can be quite technical at times, I highly recommend it if you desire to understand the plight of these countries.