Reforming the Business Environment :Current Thinking and Future Opportunities

The Donor Committee for Enterprise Development www.Enterprise-Development.org Reforming the Business Environment: Current Thinking and Future Opportunities Thematic Overview of the Papers presented at the Cairo Conference, 29 November to December 2005 15 March 2006 -2- Table of Contents A B Introduction .3 Systemic approaches .3 B.1 Dimensions of the problem .3 B.2 The Process of Reform .4 B.3 Public-Private Dialogue (PPD) B.4 Other systemic issues .5 C Radical Treatments C.1 The Regulatory Guillotine C.2 The Bulldozer Initiative .6 D Assessment Tools .6 D.1 Overview D.2 Sectoral level, Value Chain Analysis D.3 Regulatory Impact Assessment (RIA) E Business registration and formalisation F Tax Regimes for Small Business G The Land Market and Investment .9 H Inspections 11 I Other outstanding issues 11 J Donor responses .11 K Conclusion 12 Annex A: List of Papers and Presentations, with hyperlinks 13 Annex B: Papers and Presentations focusing on particular countries 16 Annex C - Conference Communique .17 -3- A Introduction Most of the poor will only be able to work their way out of poverty if they can start and 'grow' their own businesses - or find employment in another, growing business In many developing countries, however, these businesses face enormous regulatory barriers Development agencies have therefore become interested in ways to reform the business environment, so that businesses and economies can grow; while various terms are in use, this Paper uses the term 'business environment' to refer to both the policies, law and regulations, and the institutions, or 'rules of the game', that affect private sector development1 Given the current interest in this theme, the Donor Committee for Enterprise Development (www.enterprise-development.net) recently organised a Conference in Cairo, to review current knowledge The Conference featured about 60 peer-reviewed Papers, presented mostly in break-out sessions Since most speakers prepared both a presentation and a Paper, there are about 110 documents in all; these were provided to the participants on a CD-ROM, and have since been posted on www.businessenvironment.org Given the importance (and volume) of such a body of knowledge, this Paper has been written to index some of the learning points arising from the Cairo Conference; it is designed to enable the reader to find materials of most interest to the individual, as quickly as possible Each of the Cairo Papers and presentations have been referenced by the Session number in which they were presented, so the Session number is also given as a reference throughout this Paper (in parentheses), to enable readers to find the original material A complete list of Papers and presentations is included as Annex A, with hyperlinks - again organised by Session number Annex B lists the Papers that focus on particular countries Annex C reproduces in full the final version of the Conference Communique, synthesising the messages coming out of the presentations and discussions in Cairo Papers giving practical experience are referred to more in the text below than those outlining new projects or future plans; it is a personal selection, and is not intended to be either comprehensive, or representative of any official viewpoint Indeed, the Conference essentially consisted of peer-reviewed submissions, so is not necessarily a comprehensive overview of the current 'state of the art' - there may be gaps Occasionally, therefore, references are given to other publications that are relevant This report has been prepared by Jim Tanburn (Jim@Tanburn.com) Thanks go to the Business Environment Working Group, including particularly Martin Clemensson and Simon White, who were central to the Cairo Conference process; particular thanks also to SDC for their support for this Paper B Systemic approaches B.1 Dimensions of the problem To quote from an earlier study, "modern day business enterprises in Africa and transition countries suffer regulatory barriers which were largely absent in 18th and 19th Century Europe and North America when these areas were Figure 1: Business Entry Costs as % of GDP/Capita For a more detailed discussion of the term, see Emerging issues and debates in the reform of the business environment for small enterprise development, by Simon White Small Enterprise Development Journal Volume 16 Number 4, December 2005 P 10-18 -4industrialising"2 A graphical illustration of this point is shown in Figure 1; it was used by both Welch (2.1) and Waddington (3.4) Shen (3.1) made a similar point by showing the cost of registering property, expressed both in days and as a percentage of property value; at 14.4%, sub-Saharan Africa had by far the highest registration cost, relative to property value, of any region As a result, much capital remains informal and illiquid; in his Opening Speech, for example, President Mkapa of the United Republic of Tanzania noted that the informal, extra-legal economy in his country "holds assets worth USD 29 billion, much more than what Tanzania has received over the years in terms of FDI, aid or loans In other words, what the poor of Tanzania own, if made liquid, is much more than what the outside world can ever give them!!" Many presentations singled out a Messick (3.1) singled out the lack source of economic stagnation and Investment Climate reform that the include:      particular aspect of the overall system; for example, of means to enforce contracts, as the most important under-development Hallberg (5.1) listed the aspects of World Bank Group gives most priority to: core themes judicial and other dispute resolution mechanisms legal institutions for a market economy personal and property rights corporate governance regulation and competition policy Non-core Investment Climate themes for the Bank include:      tax and policy administration infrastructure services for private sector development other financial and private sector development export development and competitiveness trade facilitation and market access B.2 The Process of Reform Some papers did consider the process of reform; Rodrigo (3.1) lists various types of regulatory decision-making processes, and typical situations where they are commonly used:      expert (typically using tools such as Regulatory Impact Assessment, or RIA) consensus (e.g Netherlands) political (most commonly in times of political crisis) benchmarking ( popular in smaller countries) empirical (often used in the United States - again with RIAs) Court (4.3) gives an overview of the literature and issues in political reform processes, noting the 'I's in influencing policy: Information, Interests, Ideologies and Institutions He also includes the diagram shown here as Figure on the Policy Cycle A similar cycle is noted by Waddington (3.4) Problem Definition/ Agenda Setting Constructing the Policy Alternatives/ Policy Formulation Evaluation The Policy Cycle Policy Implementation and Monitoring 3.Choice of Solution/ Selection of Preferred Policy Option Policy Design Figure from Young, E and Quinn, L., 2002, Writing Effective Public Policy Papers: A Guide To Policy Advisers in Central and Eastern Europe, Budapest: LGI (Court, 4.3) Indigenous PSD and Regulation in Africa and Central Europe: A 10 Country Study, 2002, by Graham Bannock et al for DFID -5Most presentations indicated that political will was of central importance, and some presentations addressed the political economy aspects (especially Session 4.1, although the presentations and Papers for that Session were not available at the time of writing) Indeed, the question of demand for reform remains challenging, since the countries most in need of reform are not always the ones that are most enthusiastic to so Also, whose demand is most likely to lead to pro-poor growth in the longer term? B.3 Public-Private Dialogue (PPD) Public-private dialogue (PPD) can in principle enable the private sector and civil society to generate pressure for reform, and several presentations focused on this theme; PPD was presented as a structured consultation process between the public and private sectors, to improve the business environment Herzberg presented experiences from 40 countries, while Gamser similarly presented DFID's experiences from many countries (both 2.4) Both Papers give a wide range of experiences and insights, that allow readers to benefit from achievements and lessons learned; for example, should partnerships should be restricted to government and business, or should they also include other stakeholders, such as labour unions, academics, NGOs and consumer groups? In general, a phased introduction of additional stakeholder groups is suggested Similarly, the issue of possible 'capture' of the process by larger firms is discussed Session 4.4 included three additional presentations touching on the PPD theme; for example, Lamotte considered how to ensure that the voice of entrepreneurs is heard, outlining a number of cases from ILO's experience; this included partnering with radio stations in Uganda to provide a forum for advocacy and feedback, leading to reform of several regulations and policies that had discriminated against small business PPD, therefore, can generate demand for reform; anecdotally, the various benchmarking exercises around the business environment have also generated some political will for reform from countries that find themselves low in the rankings Finally, a website has recently been launched to develop the PPD theme further, at www.PublicPrivateDialogue.org; it makes additional case study material available B.4 Other systemic issues Reinprecht (1.3) touched on the influences of local cultures on the reform process; she proposed a series of culturally-specific factors that can enhance business environment reform, and others that can impede it She also reviewed a range of tools and methodologies for analysing cultural features, and for facilitating the cultural aspects of the reform process Other systemic issues, however, remain to be addressed more thoroughly in future For example, few presenters discussed the theme of corruption in any detail 3; one exception was the presentation on the BEEPS survey findings in transition countries (Fankhauser, 1.1) Similarly, little mention was made of other possible pre-requisites for good reform processes, such as the need to attract and retain talented staff in the Ministries of reforming governments It is generally easier to create new legislation, than to abolish or simplify existing legislation; President Mkapa recommended in his opening speech, for example, that "if it is not absolutely necessary to make a law, it is absolutely necessary not to" Similarly, implementation of reformed legislation is often a challenge in developing countries There was some discussion, therefore, of alternatives to regulation, particularly for dispute resolution (Messick, 3.1) In addition, some initiatives cut through the 'Gordian knot' of the many regulations; these more radical treatments are outlined in the following Section For an interesting discussion of this theme, as it relates to the World Bank in particular, see The World's Banker, by Sebastian Mallaby; Yale University Press, 2005 Chapter -6- C Radical Treatments C.1 The Regulatory Guillotine In 1984, the Government of Sweden found that it could not compile an official list of all the regulations in force; there were too many, spread across multiple authorities It therefore gave all of the relevant authorities one year in which to list the current regulations, after which time any regulations not listed would not have any force Some screening was also applied, to ensure that those regulations which were listed met some basic quality standards In education alone, apparently, 90% of the rules were eliminated This experience in simplifying regulations was later disseminated by the OECD, and used with success in Hungary, Mexico and Korea Jacobs and Associates (www.regulatoryreform.com) has trademarked the term Regulatory Guillotine, and helped to implement the approach in Kenya, Moldova and Ukraine (Jacobs, 4.2) The reviews lasted 2-6 months, during which time many regulations were eliminated For example, Moldova had 67 Inspectorates with over 1,100 regulations for business After review, it was decided that:    426 formal acts met the criteria of review and should be included in the Registry 285 formal acts (or 35 % of those relevant to businesses) should be amended 99 formal acts (or 12 % of those relevant to businesses) should be discarded (many of these had not been published or authorized by higher level laws) Similarly, Kenya was found to have over 1,300 business licenses (including 600 by local authorities) and fees imposed by 178 State bodies, with more being added all the time 35 licenses were eliminated in 2005, and more reviews are now planned In Ukraine, 15,000 regulations were identified, of which 4,900 were repealed during 2005 C.2 The Bulldozer Initiative A similar approach was adopted in the Bulldozer Initiative in Bosnia and Herzegovina (Herzberg, 2.4) A commitment to implement 50 reforms in 150 days created a sense of urgency and momentum, leading to 'ignition' Social marketing was used extensively to reach out to people in all areas, who were invited to propose specific reforms; the process was therefore highly participatory, and an example of Public-Private Dialogue It did benefit from the rather special political conditions prevailing at the time, though, including particularly the support of the High Representative Nonetheless, the achievements of this initiative were impressive Figure 3: Bulldozer Initiative logo D Assessment Tools D.1 Overview The Sections above have briefly addressed the political economy aspects of business environment reform; development agencies, however, seek methodologies that can be replicated in many countries In particular, they generally prefer to start with assessment tools, and so an overview of assessment tools was presented early in the Conference by Silva Leander (1.1) She summarised 30 survey instruments, including both public and private-sector organisations, and mostly available on the internet The summary proposes typologies of survey, based on the following categories:   quantitative (measurable) vs qualitative (perceptions of business people) aggregated at national-level to compare between countries vs disaggregated to uncover variations within countries, especially large ones (e.g World Bank in India, IMD in China) -7  studies of specific features: regulation (Doing Business), corruption (Transparency International), economic freedom / civil liberties (Heritage Foundation, Freedom House, World Bank Governance) studies of specific sectors (e.g MIGA in Asia) or firm sizes (e.g FIAS informal economy studies in Rwanda and Sierra Leone) "If readers are looking for studies that consider many aspects of the investment climate, and then aggregate them to create a single index, then the World Economic Forum’s Global Competitiveness Report [www.weforum.org] and the International Institute for Management Development’s (IMD) World Competitiveness Scoreboard [www.imd.ch] are the ones to consult." "For country investment climate (IC) surveys, the [DFID] Team recommends The World Bank’s Investment Climate Surveys [www.worldbank.org/research/PICS/] Their comprehensive and in-depth analysis makes them ideal for facilitating dialogue between governments, the private sector and civil society For a lighter comparative approach we suggest the Commonwealth Business Council’s Business Environment Surveys (BES) Both the ICAs and BESs are repeated at 4-yearly and 2-yearly intervals respectively, thereby helping to shed light on how investment climates are changing over time." The order in which countries are ranked varies, according to the methodology used; Krylova (4.3) points out that Uganda scores more highly than China in economic freedom and regulatory burden, yet attracts rather less FDI Other Papers describing experiences with assessment tools included Reissner in the SADC region (1.1), Anh and Baan using an ILO methodology in Lao PDR (1.4) and Palmade at the sectoral level (1.1); the latter is outlined in more detail in the next Section D.2 Sectoral level, Value Chain Analysis Palmade (1.1) argued that many binding constraints on productivity are actually sectoral in nature; he drew on evidence from many countries (particularly India) and on the work of McKinseys in this area4 Taking the wax print textile sector in Nigeria as a specific example, he showed that the inputs were twice as expensive as in China, and utility costs were three times as much Labour costs were 60% higher than in China The CD-ROM received by participants in the Conference also received a draft Paper by Subramanian (who could not be at the Conference herself), outlining a more detailed manual being prepared in FIAS for applying value chain analysis Since it was marked as a draft, it has not been posted on www.businessenvironment.org However, Figure below summarises the key steps envisaged in the methodology The Donor Committee for Enterprise Development has another Working Group devoted to Linkages and Value Chains, and indeed there is a large body of knowledge already developing in this field (see for example www.sdc-valuechains.ch, www.ids.ac.uk/globalvaluechains and www.mmw4p.org) http://mckinsey.com/mgi/rp/CSProductivity -8- Figure 4: Elements of the Value Chain Analysis (FIAS) D.3 Regulatory Impact Assessment (RIA) Rodrigo (3.1) described the application of Regulatory Impact Assessment (RIA) in OECD countries and several middle-income countries (e.g Mexico, Czech Republic, Hungary) She notes that RIA is technically demanding, since it looks at both costs and benefits of regulations; quality control can be a challenge, even in wealthy countries Pre-conditions for successful RIA include a high level of expertise and good access to information; "many low and middle-income countries not yet meet these pre-conditions" She also notes that RIA methods are not yet fully developed, and there is not yet full agreement on a number of important points, such as establishing a social discount rate for benefit-cost analysis, valuing intangible benefits and dealing with risk and uncertainty Nonetheless, other presenters did touch on the application of RIAs in transition and developing countries, including Ladegaard (3.4) Drawing on experiences in Serbia, Macedonia and the Slovak Republic, he concludes that two years are required, for the design and launch of an RIA system The methodology may still need adaptation by donors to be more 'pro-poor'; training courses are also needed, with both local and international content, to provide access to the necessary skills Waddington (3.4) reports on the use of RIA in Uganda, and Binh (5.3) in Vietnam; both outline the experience and the application of the framework, rather than giving the results or the tool in any detail Waddington concludes that "core RIA frameworks systems need little amendment for the developing country context resource constraints should not be a barrier" However, the impact will be limited unless RIA is part of a wider reform process E Business registration and formalisation The time required to register a new business is one of the most popular yardsticks among development agencies, to quote when illustrating the urgent need for business environment reform; this is partly because it illustrates the difficulty for people with small businesses who would like to join the formal economy While they stay in the informal economy, they cannot enjoy the full benefits and protections that would normally be theirs; similarly, the government cannot regulate and tax them in the way it would normally like to Welch (2.1) explores these issues in some depth, in a study commissioned by USAID for the DAC Network on Poverty Reduction; the Paper also includes some practical recommendations to reduce barriers to formalisation -9Mikhnev (2.2) outlined a toolkit for building the capacity for business registration reform at the sub-national level, which has since been placed on the web He illustrates the potential to simplify reform processes with simplified flowchart reproduced as Figure 5, below The horizontal line illustrates a similar registration process, after streamlining Mikhnev's Paper includes Annexes with case studies from Canada, Kosovo and Turkey Vignjevic (2.4) described how a new Business Registration Law in Serbia had reduced registration time from 105 days to days, and introduced a 'silence is consent' rule Haggerty (4.2) presented reforms to the municipal operating license and construction permit procedures in Peru and Nicaragua He reported various improvements as a result of reform; for example, the number of days to obtain an operating license in Lima had reduced from 60 to 1.6 Omran and Waly (2.3) reported on a reform that reduced registration time in Egypt from 366 days to 15 days While reductions in the registration process can make it easier to formalise, there may still be strong disincentives to so For example, Engelschalk (3.2) noted that small businesses in the formal economy are subject to many different taxes; special tax regimes have generally only considered a few of these taxes Indeed 75% of sole traders in Ukraine were found to have stayed outside the formal economy, one year after the introduction of a special tax regime Another dis-incentive to formalisation relates to the ease of exit; bankruptcy law may be as important as registration procedures Figure 5: Simplified flowchart showing process of business registration (Mikhnev) Finally, for many businesses, registration is seen as a problem that occurs only once; it may therefore not be given priority, for example in PPD processes F Tax Regimes for Small Business In Session 3.2, Coolidge presented experiences with tax regimes for small business in Georgia, Ukraine, Russia and Albania; the Paper associated with her presentation was written by Engelschalk Stern presented experiences with tax regimes in South Africa, Zambia and Zambia Gondwe spoke from the perspective of a tax authority (in that case, South Africa) These Papers explore the advantages and disadvantages of the various formats for taxing small businesses: a turnover tax, a presumptive tax or a patent (operating license) Stern notes that a special tax regime must lower the Marginal Effective Tax rate (METR), but not be http://rru.worldbank.org/PapersLinks/Open.aspx?id=6749 (2.1 Mb) - 10 so low as to create a growth trap; ease of compliance is as important as the rates and instruments Engelschalk notes: "Taxpayers and tax administrations have different expectations regarding the potential benefits of simplified systems From a taxpayer point of view, stability and clarity of the tax system and a reduction of the compliance as well as the tax burden should be the most important outcome of presumptive systems The main interest of tax administrations lies in the revenue yield of the system ["negligible" from small businesses in "most cases"], the reduction of administrative costs, and an increase in voluntary compliance." In practice, special tax regimes have increased the number of small businesses registered, but have not generally improved compliance substantially This may be partly because, in most countries, tax systems remain complex; the simplified regime only applies to certain taxes Also, these simplified systems have often been through frequent and fundamental changes, in many transition countries; it has therefore been difficult to tell what the impacts have actually been The presenters concluded by recommending the improvement of the regular business tax regime, before any special regimes for small business are contemplated G The Land Market and Investment Shen (3.1) presented a Paper on Improving Access to Land and Buildings by Investors, noting the four main issues: Access, Security, Use, and Consistency of Treatment McKinseys has found that land market issues are major barriers to investment and competition in more than half of all economic sectors, including retail, housing and tourism The World Bank estimates that 80% of the countries in its most recent Doing Business survey prohibit or restrict foreign ownership of land "In a situation typical of much of Africa, less than percent of the land in Mozambique has been surveyed, and even less registered Even where property is registered, investors may still face big delays in recording land transactions In Nigeria an entrepreneur seeking to buy property free of dispute and officially recorded must complete 21 procedures—a process that takes a staggering 274 days and requires official fees amounting to 27 percent of the property value It need not be so In Norway the same process takes only a day and requires payment only of a registration fee and 2.5 percent of the property value in stamp duty." Similarly, Figure illustrates the process of registering land for business use in one Russian city Figure 6: Flowchart of the procedure for allocation of land plot for business use (Nizhny Novgorod) - 11 There have been successes in reforming these hurdles; in Peru, for example, the title registration process was reduced from years to 45 days, with the cost of title coming down from $2,156 to $49 This led to 1.3m titles being registered between 1996 and 2002 While comprehensive land reforms seem to take 10-15 years, not enough experience has yet been accumulated, for many firm conclusions to be drawn There are relatively few cases at the moment on each aspect of land reform, and these are mostly still pilot interventions Interesting questions remain, for example around how to ensure that the poor benefit (or at least not lose) during the formalisation process H Inspections Many developing countries have thousands of regulations affecting business; often, there is little knowledge about these regulations - which ones apply in which situations This creates an environment ripe for multiple inspections, and it may be tempting for those businesses being inspected to pay off the inspectors, rather than face disciplinary proceedings Many of the Papers outlined above aim to reduce the number of regulations affecting business; some, however, tackled the issue of inspections directly For example, Lozansky and Khashimov (4.2) outlined experiences to streamline inspections in Uzbekistan They found that inspectors were able to close operations down, or impose high fines; they were allowed to keep part of the fines collected Tax, sanitary and fire service inspections were targeted for streamlining, and the average number of days being spent by SMEs on inspections was brought down from 14 to The estimated $21m p.a savings came mainly from reductions in shutdowns, as a result of the more enlightened inspection regime On the other hand, unofficial payments were made during 36% of inspections after the change, compared to only 9% before, with inspectors focusing on the largest and most successful enterprises One might speculate that some of the inspectors may have borrowed money in order to purchase their position in the first place, and felt the need to continue to generate revenue for themselves, in spite of the changes I Other outstanding issues Ellis (1.2) presented findings of a survey in Uganda on the extent to which women in business experience the business environment differently; for example, 43% of femaleheaded enterprises reported that government officials had interfered with their business, relative to 25% for all enterprises In general, though, there did not seem to be many experiences (yet) on implementing reforms that benefit women in smaller and more rural businesses Joshi (4.3) argued that labour laws were often too complex, and needed to be simplified rather than abolished; deregulation was not necessarily the best solution Many presentations, however, focused on streamlining and reducing administrative burdens for business - even though relatively little information was presented on what differences these reforms had made, in practice, to the lives of the poor and under-privileged Clearly, this is a problematic field; some of the impacts are likely to appear only in the longer term Besides, one can intuitively conclude that reductions in administrative burdens, and increased access to titles and rights, will benefit poor people - not least through enabling economic growth As an illustration of current thinking, Omran and Waly (2.3) presented the results of a survey of the SME donor sub-group in Egypt; it found that the majority were interested in reform of the business environment in order to increase international trade and support competitiveness, rather than to alleviate poverty directly Similarly, the most commonly-cited future direction was related to modernisation (competitiveness, exports etc.) Presumably, though, the pressure to demonstrate the links between modernisation and poverty alleviation (or at least pro-poor growth) can only grow, so additional data in this area will be welcome - 12 - J Donor responses Laird (Plenary) presented a draft OECD Paper on "Using ODA to promote private investment for development: Preliminary policy guidance for donors" It notes that "donors need to change the way they business They need to have access, individually or collectively, to an appropriate range of aid instruments Their internal systems should not work against staff pursuing longer-term and riskier interventions efforts may not come to fruition within a donor's typical or 4-year programme cycle, or the period of one staff member's posting to a developing country." It also noted that "donors have focused too much on assisting specific types of firm experience has shown this can lead to market distortions and poor sustainability." Indeed, there was a debate on this theme in the Conference, based on a Paper presented by Vandenberg (Plenary); the Paper sets out the various arguments for and against a focus on small businesses when reforming the business environment The issue does, however, remain an open one; President Mkapa noted, for example, in his opening speech that "we could and should more to help the small investor" Hallberg (5.1) outlined the work of the World Bank Group in reforming the investment climate since 1993; this showed that 'regulation and competition policy' was the most popular subtheme She also outlined the roles of the various organisations within the WBG relating to business environment reform7 A recent evaluation of WBG activities had found that clients would like more focus on investment climate reform, but that more attention was needed to setting priorities and sequencing reforms There was also a need to know more about good practice in institutional design; institutional issues ('the rules of the game') are the key challenge Piecemeal efforts were found to be less successful than a 'big push' of reforms; investment climate reform is a marathon, not a sprint Preston (3.4) gave some recommendations for donors on implementing competition policy in developing countries:    support empirical research on the impacts of competition policy and law encourage culture of competition (eg support to consumer groups) help to formulate competition policy and law, train staff in competition authority He noted, however, that many cartels operate at the international level, and recommended funding also for international programmes K Conclusion The community of development agencies is inherently fragmented, in the sense that individual organisations may not feel motivated to disseminate the full range of their experiences It can be difficult, therefore, for the industry as a whole to learn lessons quickly, particularly those gained from experimental interventions Indeed, the changes in approach to developing business service markets ('Business Development Services' etc.) were largely driven by an intensive exchange of information and experiences between agencies - an exchange which continues even now The exchange of experiences in the Cairo Conference on business environment reform was therefore particularly important, because so many presenters from different agencies worked hard to synthesise experiences into relatively short Papers In addition, the conference Communique (Annex C) distilled the key messages into a general document; nonetheless, great interest has been shown in a document that points people towards the individual The version on the CD provided to participants was a draft version; the final version has been published as "Promoting Private Investment for Development: The Role of ODA" see: www.oecd.org/dac/investment Sader (2.3) showed the dramatic increase in IFC staff dedicated to TA since 1998 - 13 Papers and presentations that they are likely to find interesting, and hopefully this Paper can contribute to filling that gap It does, however, represent an on-going exercise Several events on this topic are planned during 2006, to meet the demand for learning opportunities Continued monitoring of relevant websites, such as www.businessenvironment.org, www.enterprise-development.net and rru.worldbank.org, is therefore strongly recommended - 14 - Annex A: List of Papers and Presentations, with hyperlinks Link to Cairo Conference 'top page' for all Sessions Plenary sessions Opening Speech by the President of the United Republic of Tanzania, HE Benjamin Mkapa Using ODA to Promote Private Investment for Development - Preliminary Policy Guidance for Donors (OECD) The Relevance of Firm Size When Reforming the Business Environment, by Vandenberg Session 1.1: Assessing the Business Environment for Small Enterprises: Latest Techniques Making Sense of Investment Climate Surveys, by Silva Leander, DFID Paper, Presentation Regional Business Climate Survey for SADC Countries, by Reissner Paper, Presentation Doing Business in Transition Countries, by Fankhauser, EBRD: Paper, Presentation Industry Level / Value Chain Analysis, by Palmade, FIAS: Paper, Presentation Session 1.2: Assessing the Impact of the Business Environment on Women-Owned Businesses Paper: Gender and Growth Assessment for Uganda Presentation: Gender Issues in Reforming the Investment Climate, by Ellis, IFC Evaluation of DFID Development Assistance: Gender Equality and Women's Empowerment, by Pinder for DFID: Paper, Presentation Paper: A National Survey of Women Business Owners in Vietnam Presentation: "Engendering" PSD - A Vietnam Case Study, by Trang Nguyen, IFC Session 1.3: Improving the Business Environment at the National Level How a Business Membership Organisation Can Contribute to Improving the Business Environment in North-East Brazil, by Meier and Wahl: Paper, Presentation The Experience of FUNDES in Latin America, by Elfid Torres: Paper, Presentation Creating an Enabling Business Culture, by Karin Reinprecht: Paper, Presentation Session 1.4: Improving the Business Environment at the Sub-National Level: What Local and Provincial Governments Can Do Case Study Philippines, by Macaranas and Valhaus: Paper, Presentation Quick Scan of the Business Environment in Lao PDF, by Anh and Baan Paper, Presentation Session 2.1: Informal Enterprises - Informal, Unregistered, Untaxed and Critically Important to National Economies Removing Barriers to Formalisation, by Bannock Consulting for USAID: Paper, Presentation The Business Environment and the Informal Economy, by Chen Paper, Paper Annex, Paper References, Presentation Session 2.2: Building the Capacity for Reform Paper: Reforming the Business Environment in Afghanistan, by Reinhard Palm, GTZ Presentation: The Afghan Investment Support Agency, by Fatimie and Palm The Wezesha PSD Programme, Lake Zone, Tanzania, by Sambua Paper, Presentation - 15 Building the Capacity for Business Registration Reform, by Mikhnev Paper, Presentation Session 2.3: How Donors Can Work Together Donor Coordination in SME / Private Sector Development in Vietnam, by Nguyen HoaCuong: Paper, Presentation How does the IFC deliver TA? by Sader: Paper, Presentation Donors' Business Environment Reform Interventions in Egypt, by Omran and Waly: Paper, Presentation Session 2.4: Improving Public-Private Dialogue Paper: Review of 40 Countries' Experiences, by Herzberg and Wright Presentation: Engaging Stakeholders through Competitiveness Partnerships, by Herzberg Mechanisms and Processes for Public-Private Sector Dialogue, by Gamser et al: Paper, Presentation Engaging the Private Sector in Business Environment Reforms: Experience from South East Europe, by Vignjevic, IFC: Paper, Presentation Session 3.1: Red Tape and Small Business - What Kind of Laws and Regulations Work - and Don't Work Regulatory Impact Assessment in OECD Countries: Challenges for Developing Countries, by Rodrigo Enriquez, OECD: Paper, Presentation What Governments can to Facilitate the Enforcement of Contracts, by Messick, World Bank Group: Paper, Presentation Land Markets - Improving Access to Land and Buildings by Investors, by Muir and Shen, FIAS: Paper, Presentation Session 3.2: Taxing Small Businesses - How Some Governments are Improving their Tax Laws Paper: Designing a Small Business Tax System that Enhances Growth - Lessons from Africa, by Stern and Barbour Presentation: Taxation, Growth and Small Business Development - Experiences from Africa, by Stern, FIAS Paper: Small Business Taxation in Transition Countries, by Engelschalk, World Bank Presentation: Small Business Taxation in Transition Countries, by Coolidge, FIAS Presentation: A Tax Administration's Perspective on Small Business Tax Regimes, by Gondwe Session 3.3: Improving the Business Environment at the Sub-National Level - What Local and Provincial Governments Can Do e-Government to Improve the Local Business Environment - A Case Study from Latin America by Karkowski and Buss: Paper, Presentation Enabling Environment for the Private Sector - GTZ WIRAM Program Mozambique, by Macarinque and Kaufmann: Paper, Presentation Creating a Positive Business Environment for the Informal Economy in South Africa, by Lund and Skinner: Executive Summary, Paper, Presentation Session 3.4: Creating more Competitive Business Environments - Competition and Regulation Paper: Implementing Competition Policy in Developing Countries - The Role of Donors, by Preston, DFID Presentation: Promoting Competition Policy - The Role of Donors, by Preston, DFID Improving Business Environments through Regulatory Impact Analysis, by Ladegaard, FIAS: Paper, Presentation - 16 Paper: Introducing Regulatory Impact Assessment in Developing Countries - The Case of Uganda, by Welch and Waddington Presentation: Regulatory Impact Assessment in Developing Countries: Some Lessons from Uganda, by Waddington Session 4.1: Why Some Countries Successfully Improve their Business Environments and Others Do Not Papers and presentations from this Session were not included in the CD-ROM or on the website Session 4.2: Reducing the Regulatory Burden on Business The Regulatory Guillotine in Three Transition and Developing Countries, by Jacobs Paper Reforming the Inspections System in Uzbekistan, by Lozansky and Khashimov: Paper, Presentation Paper: Simplifying Regulation at the Municipal Level in Peru and Nicaragua, by Haggarty, IFC Presentation: Cutting Red Tape - Simplification of Business Regulation at the Municipal Level in LAC, by Haggarty, IFC Session 4.3: The Role of Policies, Laws and Regulations for Small Business A Case Study of the SMEPOL Project in Egypt, by Court and Osborne Paper, Presentation How to Build an Effective Policy Framework for SMEs, UNCTAD Paper, Presentation What Roles does Labour Law Play, by Joshi, ILO: Paper, Presentation Session 4.4: Listening to Small Enterprises - Improving Public-Private Dialogue Challenges and Opportunities to Giving Voice and Participation to Entrepreneurs in Business Environment Reform, by Lamotte, ILO: Paper, Presentation The Better Business Initiative in Nigeria, by Agboli, IFC: Paper, Presentation Monitoring and Evaluation of Multi-Stakeholder Cooperation and Partnerships in LED, by van Gerwen and Nedanoski: Paper, Presentation Session 5.1: Methods to Improve Monitoring and Evaluation of Reform Programmes An Evaluation of World Bank Investment Climate Activities, by Hallberg Paper, Presentation Assessing the Impact of Enabling Environment programmes, by Pinder Guidelines, Handbook, Presentation IFC Core Indicators for Technical Assistance Projects, by Bardini Paper, Presentation Session 5.2: An Example for Africa - Business Environment Reform in Tanzania A Tanzanian Case Study, by van Gerwen and Olomi: Paper, Presentation The Case of Best, by Tax-Bamwenda: Paper, Presentation Reforming the Business Environment in Tanzania, by Musiba: Paper, Presentation Session 5.3: A Case Study of Dramatic Change - Business Environment Reform in Vietnam Reform of the Enterprise and Investment Law in Vietnam, by Nguyen Dinh Cung and Le Duy Binh: Paper, Presentation A Case Study of the Unified Enterprise Law and Common Investment Law, by Trang Nguyen: Paper, Presentation A Private Sector Perspective on Business Environment Reform - The Case of Vietnam, by Dr Pham Thi Thu Hang: Paper, Presentation - 17 The Final Draft SME Development Plan 2006-2010, by Pham Thi Thanh Ha Paper, Presentation - 18 - Annex B: Papers and Presentations focusing on particular countries Session number in parentheses - note that some Papers give substantive information on many countries, including particularly:        Making Sense of Investment Climate Surveys (Silva Leander, 1.1) Removing Barriers to Formalisation (Welch, 2.1) Public-Private Dialogue: Experiences in 40 Countries (Herzberg, 2.4) How to Promote Public-Private Dialogue (Gamser, 2.4) RIA, Enforcement of Contracts, and Land Markets (all 3.1) Improving Business Environments through RIA (Ladegaard, 3.4) Evaluation of WB IC Activities (Hallberg, 5.1) Papers with a specific country focus or information: Afghanistan (2.2) Albania (Engelschalk, 3.2) Egypt (Omran, 2.3; Court, 4.3) Georgia (Engelschalk, 3.2) India (Palmade, 1.1) Kosovo (Mikhnev, 2.2) Laos PDR (SNV, 1.4) Macedonia (4.4) Mozambique (Macaringue, 3.3) Nicaragua (Haggerty, 4.2) Nigeria (Agboli, 4.4) Peru (Haggerty, 4.2) Philippines (GTZ, 1.4) Russia (Engelschalk, 3.2) Rwanda (Stern, 3.2) Serbia (Vignjevic, 2.4) South Africa (Gondwe, Stern, 3.2; Lund, 3.3) Tanzania (2.2, 5.2) Uganda (Ellis, 1.2; Waddington 3.4) Ukraine (Gamser, 2.4; Engelschalk, 3.2) Uzbekistan (Lozansky and Khashimov, 4.2) Vietnam (2.3, 5.3) Zambia (Gamser, 2.4; Stern, 3.2) - 19 - Annex C - Conference Communique Committee of Donor Agencies for Small Enterprise Development International Conference on Reforming the Business Environment 29 November to December 2005, Cairo Conference Outcomes Incorporating comments made during the final conference plenary Final version For three days in November and December 2005, some 300 people representing 29 donor agencies from field and headquarter structures, as well as representatives of developing country governments and the private sector came to Cairo to discuss ways to reform the business environment To our knowledge, this is the first broad based multi-donor conference to consider this issue As a result, we considered a wide range of issues affecting the assessment and reform of the business environment The conference considered three stages in the lifecycle of reform programmes: (a) assessing the business environment and designing reforms; (b) the tools, techniques and frameworks that can be used to successfully implement reform programmes; and (c) ways to measure the impact of reforms and to monitor programmes More than 65 presenters and panellists participated in the programme and 56 papers were presented These papers described business environment reform experiences from all regions of the world; some focused on reform programmes at the local level conducted with local government authorities and local business membership organizations Others examined the link between business environments, the informal economy, value chains and gender Reform programmes – dealing with taxation, regulatory best practice, contract law, land administration and labour law – at both national and local levels were discussed Throughout these discussions we tried to ensure that donor agencies learned from the perspectives of developing country governments and the private sector General key messages We have been able to reach a number of general agreements on business environment quite quickly While it is easy to agree on generalities, we have tried to agree on specific messages wherever possible These messages are informal and unofficial recommendations for donor agencies engaged in providing support for business environment reforms in developing countries We recognise that reforming the business environment is one of the most important areas in the global development agenda for donors and governments While there is a need for more evidence in the long-term, we think that donor agencies would well to include business environment reform in their efforts to promote private sector development, economic growth, equity and poverty reduction Business environment reform is a multidisciplinary field of work requiring a wide range of competencies, programme partners, processes, tools and techniques Private sector must be an active player in the business environment reforms (as it was written before we differentiate PSD programs and governance programs In case of BE reforms they should not be such difference, but rather be one program of reforms with the private sector involved) Business environment reform can occur at regional, national and subnational levels and is the responsibility of developing country governments, the private sector and civil society; these actors should own and manage reform processes, donor agencies can only support and enhance their initiative - 20 While reforms often focus on policies, laws, regulations and their enforcement mechanisms, success and sustainability in reform always comes down to cultural and attitudinal change, including a reform-oriented mindset This is a key ingredient Donor agencies can promote the creation of better business environments by supporting the transformation systems away from those based on personal contacts and patronage to those that are based on rules While it is recognised that governments play a key role in managing and reforming the business environment, donor agencies should continue to be open and committed to working with the private sector (at local, national and international levels) and encouraging their public sector partners to this as well Business environment reform is a political process Donor agencies cannot ignore this While technical solutions have their place and can add-value to the quality and speed of reform efforts, a key determinant to the desire for and success of reform is political will and political leadership While much has been done in recent years with regard to assessing the business environment – and more should be done – greater attention needs to be given to helping governments and local agencies design solutions Donor agencies need to broaden their repertoire in the ways they can support reform of the business environment As donor agencies we should emphasise the importance of implementation – this includes a commitment to the competencies and capacities of donors and their partners to make reforms work While much can be learned from international experience, business environment reforms work best when they are designed according to the specific national (and sub-national) contexts (e.g., local cultures, institutions, as well as the political, economic and social context) 10 Recognising local actors (private, public and civil) and building their capacity to participate in business environment reform is critical for successful and sustainable reforms 11 Donor agencies should share responsibility for reforms they support The donor funding should support the reforms which utilize the international best practice and develop the most efficient and realistic solutions To ensure that donor agencies need to invest in building the competencies of their own staff at field and headquarter levels to support business environment reforms 12 Impact assessment should be given more emphasis and should be included in business environment reform programmes from the beginning 13 Effective regulation and competition policy regimes are key components of a good business environment for businesses of all sizes Key messages on the hot topics The seven hot topics of the conference were considered throughout the 24 breakout sessions and four plenary sessions There is still much to be learned in each of these topics, but we have achieved a greater clarity on a number of the challenges donors face within these topics 1.1 Relevance of enterprise size Is this really an issue a debate can solve? Clearly it is not Enterprise size is an important dimension to business environment reform Small enterprises (whether they are called mini, micro, small or medium) experience the business environment differently than large firms There seems to be agreement on this - 21 1.2 1.3 1.4 1.5 1.6 2.1 2.2 2.3 3.1 3.2 3.3 3.4 3.5 4.1 4.2 However, the concern is with possible reform measures that are used to respond to this situation There is great concern that size-based policy and legal instruments can work against the interests of both small and large enterprises (Indeed, we not wish to overlook or disregard the importance of large enterprises.) There are many unintentional consequences from reform efforts that aim to support the small business sector It is important to adopt a systemic approach to private sector development and the creation of better business environments, which includes an understanding of the dynamics of enterprise size and the dynamics of value chains We recognise that a disproportionate amount of women-owned enterprises are small enterprises Thus, there are gender-based barriers to small enterprise growth that need to be addressed when reforming the business environment More needs to be done to understand the profile of the private sector, incorporating better data on the size distribution of firms Small enterprises suffer more from the hostile business environment, while a better business environment benefits the entire private sector – small and large businesses Role of the private sector There is strong agreement that the private sector is a critical partner in business environment reform However, there are a number of challenges, debates and difficulties donor agencies face when it comes to engaging the private sector Small enterprises and their organizations have a role to play in business environment reform, but they require specific development programmes to support them in these efforts, avoiding the dangers of donor dependency and minimising the risks of market distortion Thus, representation and capacity are critical issues for this sector Involving the private sector in the process of legal and regulatory reform from the very beginning is crucial for quality and sustainability of the reform process Public-private dialogue Everyone agrees this is important It promotes social inclusion in the business environment Public-private dialogue is important for identifying reform priorities, monitoring progress, and sustaining reform processes It is important to work with existing actors and structures first, before creating new structures Local champions play an important role in forging and facilitating new opportunities for dialogue We need to invest in supporting business representative organizations and to enhancing their participation in dialogue It is particularly important for donor agencies to help small and informal enterprises find a “voice” in the processes that support public-private dialogue It is recognised that dialogue can take both formal and informal forms What is important is the quality of this dialogue, which is affected by the timeframes, processes and representation for dialogue It is important for dialogue to be linked to specific reform agendas Donors can facilitate public-private dialogue by providing some finance for the dialogue process (meetings, etc.), but should not drive the process; they should promote good practices and approaches, but should not make business membership organizations dependent on their financial support Build a demand for reform There is strong agreement that donor agencies should respond to a domestic demand for reform The role of donor agencies is to add-value to reform processes through technical assistance, training and other forms of skills transfer, information and experience sharing However, what should donor agencies when there is not a strong demand for reform? Some people have said that nothing should be done in these situations - 22 However, others suggest that there are ways to appropriately stimulate domestic debate on these issues that will lead to a greater demand for change International, regional and national assessments that benchmark business environments and monitor change help to this So too does stronger support for public-private dialogue 5.1 5.2 5.3 5.4 5.5 6.1 6.2 6.3 7.1 7.2 7.3 Informal economy and the business environment It is important to recognise, understand and assess the costs of compliance for enterprises in the legal and regulatory framework – this includes the costs of remaining informal and the costs of formalisation There are a number of opportunities to reform laws and regulations in the fields of tax and labour to bring informal enterprises into the formal system These reforms have a developmental thrust and should maximise the long-term benefits of compliance and formalisation Large and small enterprises operate in the informal economy Indeed, there are many large firms that benefit from this involvement Most large firms are formally registered and have all permissions to run their business in the formal way However, unfriendly regulations can entice large firms to hide a part of their business transactions outside the formal regulatory requirements We have learned more about the barriers of informality, but the dynamics of informality are less understood Access to information, skills and finance is vital to the process of formalization and reducing poverty Local (sub-national) business environment reform Donor agencies should invest more in supporting business environment reforms at the sub-national level The reform of local business environments is a necessary systematic response to increasing decentralized governance There are local layers of policies, laws and regulations that should be addressed, and there are local layers of decision-making that should be engaged Local democratic political process is a main driver for reform Local governments can exert significant pressure for reform on the national political process, and vice versa Donor collaboration National donor coordination is an important first-step in improving the traction that is necessary for donors to support business environment reform However, other steps are required The next step is the collaboration of donor efforts Donor agencies need to implement commitments made, including in the Paris Declaration on Aid Effectiveness, to work more closely together This can be a difficult process requiring time and leadership Developing country governments can work with the donor community to support, enhance and, where necessary, lead coordination and collaboration efforts Topics we want to know more about The conference covered a wide range of issues, but it has become clear that there are a handful of topics that we need to know more about These are topics the donor committee could examine more closely through future research, the production of information products and the hosting of conferences and seminars Improving donor practices: principles that inform our work, guides that give us direction, tools that we can use, training that improve our competencies and effectiveness All of this should also be shared with our programme partners (i.e., developing country governments, the private sector, and civil society) Improving the ways donors can work together - 23 The links between business environment reform, economic growth and poverty reduction, including pro-poor growth and gender issues Informality: How business environment reforms can reduce informality and improve the opportunities for pro-poor growth; better statistics on the informal economy, particularly on informal enterprises and informal workers Small business taxation: How to reform tax systems so that they broaden the tax base across the private sector, while improving the benefits and support for small business Regulatory best practice: How to tailor Regulatory Impact Assessment (RIA) systems to the specific resource and institutional conditions of developing countries Improving local business environments and improving sub-national competitiveness Business environments and value chains: How can reform of the business environment improve value chain performance 10 Promoting a level playing field for business and poverty alleviation through well designed competition policies 11 Responses to globalisation: How business environment reforms contribute to better trade facilitation, the promotion of fair trade (i.e., the global business environment), and international competitiveness 12 Understanding the political economy of reform: What this means to donor practice and achieving development outcomes 13 How to work with the drivers of change 14 Evaluating and monitoring business environment reform programmes, and designing indicators and frameworks that can measure the impact of change in the business environment 15 Governance and institutional reform – this should include ways donor agencies can support good governance and the reduction of corruption 16 Supporting business environment reform in post-conflict countries 17 Ways to raise awareness (and demand) for reform, including the use of the media and social marketing strategies 18 Greater synthesis of business environment assessment tools and methods – helping donor agencies to make better use of what exists at the moment