OUTCOMES Business News, Trends, and Results from Emerging Economies Winter 2006 IFC and the Business Environment Over the past 50 years, the IFC has worked to reduce poverty and improve people's lives by responding to the needs of the private sector in developing countries. In addition to providing innovative financial products and services, the IFC, together with its colleagues in the World Bank, is increasingly using regulatory reform to strengthen the private sector in developing countries. Doing Business has brought global attention to the importance of such reforms. This edition of Outcomes highlights the IFC's work in this area. In many countries around the world, including Russia, Kazakhstan, and Serbia, the IFC and our local partners have improved legislation to fos- ter growth of the leasing sector, which enables small businesses to purchase equipment more affordably. Other areas where IFC is helping the business environment include business inspections, licenses and permits, and alternative dispute resolution. Through the Technical Assistance Facility for Latin America and the Caribbean, IFC is working to make business registration more efficient in Latin America and thus help move more small businesses into the formal Prior to reform, Bolivian entrepreneurs in need of business operating licenses sector. This issue's feature article describes our experiences in Bolivia, had to go through a manual, 45-step process taking over two weeks. where we implemented a red tape reduction program with funding from seco (Switzerland) and strong support from municipal governments. The facility is now undertaking similar initiatives in Brazil, Colombia, Hon- Bolivia: duras, Nicaragua, and Peru, and even supporting similar IFC interven- Red Tape Slashed for tions in other regions. In addition, the facility is implementing a "Munic- ipal Scorecard" that measures the municipal regulatory burden for doing Business Registration business. The results will be published in the next edition of Doing Busi- ness, providing an added level of depth to the data. We hope that this issue of Outcomes will generate more ideas on improving the business environment. Send a note to infosme@ifc.org Even when a market exists and start-up capital has been secured, the if you have suggestions or comments. We would like to learn from you. regulatory hurdles involved in registration can be nearly insur- mountable for small and medium businesses. In its Doing Business in 2006 report (www.doingbusiness.org), Anita Bhatia the World Bank Group demonstrated the impact of regulations on General Manager businesses. Reforms that make it easier to do business allow firms to Technical Assistance Facility for Latin American and the Caribbean Lima, Peru grow faster and create more jobs, thereby increasing the number of regulated businesses. This benefits women and young workers in particular, as these groups suffer disproportionately when unem- Table of Contents ployment is high. 1: Welcome Message Municipal bureaucracy has been a major impediment to eco- Bolivia: Red Tape Slashed for Business Registration nomic growth in Bolivia, one of Latin America's most heavily regu- 2: Reforming the Business Environment: From Assessing lated countries. In 2005, starting a business here required 15 sepa- Problems to Measuring Results rate steps and took approximately 50 days. In contrast, starting a 3: Data on Business Enabling Environment projects in the business in neighboring Chile took nine steps and averaged 27 days. World Bank Group Not surprisingly, unregulated businesses in Bolivia numbered 4: Partner Profile: Switzerland's State Secretariat for among the world's highest. Economic Affairs (seco) Three years ago, the government of Bolivia made reducing busi- 5: News Updates ness regulations a priority. It created an agency to promote competi- tiveness and productivity at the national level. At the municipal level, To subscribe to OUTCOMES electronically, please visit (continued) www.ifc.org/sme. 2 OUTCOMES Business News, Trends, and Results from Emerging Economics the mayor of La Paz offered his administration's full to obtain a license. As a result, the number of new support in implementing the agency's reform agenda. business registrations increased by 20 percent, and The pilot project focused on regulations pertain- revenues to the municipal government from operating ing to opening a business, specifically the procedures licenses grew by 25 percent. Increases in operational required to obtain an operating license. The project was efficiency reduced from six to two the average number designed as a series of four phases. In the first phase, of visits made by entrepreneurs to the municipality (see table). SLASHING RED TAPE The municipality now uses software that allows Getting an entrepreneurs to process their applications online. Operating Licence: Before After Change (percent) Inspections have also been streamlined, allowing for faster processing of licenses. Procedural guides, both Steps required 45 11 -75.5 in print and online, are helping entrepreneurs prepare Time required 17 days .5 days -97 more complete applications, further streamlining the administrative process [www.tramites.gov.bo]. New businesses registered +20 To share information about how to replicate busi- Municipal revenues from licenses +25 ness simplification elsewhere in Latin America, IFC Source: Simplification of Business Regulations at the Sub-National Level: A Reform sponsored Experiencia América, the First Latin Implementation Toolkit for Project Teams, 2005. American Congress of Cities and Municipalities, in IFC and its Bolivian partners analyzed the selected April 2004. More than 500 municipal leaders from business regulations in order to identify opportunities 24 countries attended for simplification, such as bottlenecks, redundancy, the congress. Business and unnecessary documentation. Then they designed simplification projects a proposal for reengineering the process, aimed at have now been launched resolving the issues identified in the initial diagnosis in Brazil, Colombia, without compromising the underlying regulatory Honduras, Nicaragua, intent--that is, simplifying the letter of the law with- and Peru. These projects out altering its spirit. Close consultation with the have incorporated the municipal government in La Paz was crucial to ensur- lessons learned from ing consensus before proceeding further. IFC's experience in Once approved, IFC worked with FUNDES Bolivia to enhance pri- International, a consulting firm with regional experi- vate sector participation ence in business simplification, to train municipal in reform efforts, ensur- employees and upgrade the municipality's informa- ing greater sustainability. tion technology (IT) infrastructure, which, in turn, Because demand for facilitated simplifying other municipal regulations. business simplification With implementation complete, IFC and FUN- projects has grown DES monitored and evaluated the pilot's success for a robustly, IFC designed a Today, Bolivian entrepreneurs period of six months. During that time, improve- toolkit to help local con- can obtain a municipal business license in less than a day. ments were made, based on feedback, to further refine sultants engage with the reengineered processes and improve operational municipal governments on these initiatives. The toolkit efficiency. includes a national guide to administrative procedures, The results of the pilot were significant. On aver- and a scorecard to measure key indicators across munic- age, the number of steps involved in obtaining a busi- ipalities within selected countries. All of these tools are ness operating license was reduced by over 75 percent, designed to facilitate project development and allow resulting in a 97 percent reduction in the time it took more efficient implementation. 3 OUTCOMES Business News, Trends, and Results from Emerging Economics The World Bank Group's Business Enabling Environment Projects The World Bank Group, including the International Finance Corporation (IFC) and the For- eign Investment Advisory Service (FIAS), implement many projects that promote legislative and regulatory reform. To get a better idea of how these programs work, we looked at business enabling environment (BEE) projects approved in fiscal years 2004 and 2005 that focus on reform implementation to strengthen the private sector. We found 61 such projects in 40 countries: 34 implemented by the World Bank, 18 by IFC, and 9 by FIAS, addressing a variety of regulatory issues, mainly land reform, taxation, import-export regulations, and business registration. More than $2.9 billion was approved for BEE projects during this timeframe, mostly under World Bank implementation. Tax administration, land reform, and import-export procedures account for over 90 percent of approved BEE projects. IFC focuses on more specialized reform issues, such as inspections, licenses and permits, business registration, and construction issues. Approved Budgets, FY 2004-2005 Total: USD$2.9 billion. Figures below in USD Millions. Sub National Regulations, $79 Other,* $40 *Alternate Dispute Resolution Business Registration Construction Issues Inspections Licenses & Permits Import Export Procedures, $776 Tax Administration, $1,121 Access to Land, $845 Source: IFC iDesk project database and WB operational portal (FY04-05). Compiled by Bela Bukta, WB/IFC Small and Medium Enterprise Department 4 OUTCOMES Business News, Trends, and Results from Emerging Economics Partner Profile: Switzerland's State Secretariat for Economic Affairs. Innovative projects need innova- Switzerland does not merely provide funding, it is tive partners, and IFC has found a true partner in developing effective developmental one in the Swiss State Secretariat programs. By combining the strengths, resources, and for Economic Affairs (seco). As knowledge of the private sector in developing coun- one of IFC's key donors, Switzerland has provided tries, seco and IFC have succeeded in developing more than US$81 million for cutting-edge programs effective programs. around the world. These include the red tape reduc- "Everyone benefits from our partnership with tion project in Bolivia, leasing sector development in IFC," says Thierry Buchs, the Head of seco's Invest- Central Asia, Tanzania and Ghana, a "Doing Business ment Promotion Division. "We have greater impact Better" program in Burkina Faso, corporate gover- when we leverage our resources against IFC's experi- nance throughout the former Soviet Union and the ence, which leads to concrete results in developing Balkans, a cotton farming cooperative in Tajikistan, and transitional countries." mortgage market development in Russia, the Sustain- For more information about seco's strategy and able Financial Markets Facility, and a feasibility study country coverage, visit its Web site at for business school programs in Africa. http://www.seco-admin.ch/. News Updates A Growing Network IFC established a program in Banda Aceh to provide assistance to small and medium-sized enterprises in Aceh and Nias. The Private Enterprise Partnership-Aceh & Nias is a multi-donor initiative that supports the growth of private enterprises in the areas affected by last year's tsunami. With this new initiative, IFC now manages 12 regional facilities with more than 800 field-based staff throughout the developing world. New Publications Simplification of Business Regulations at the Sub-National Level: A Reform Implementation Toolkit for Project Teams. The emphasis in this toolkit is on sub-national regulations, particularly municipal regulations, where most interaction between government and business take place. The toolkit provides a thorough overview of the process of simplifying business regulations at the municipal level. Business Registration Start-Up: A Concept Note by Liliana de Sa. In this paper, the author lays down gener- al principles for the regulatory functions of business registration and provides good practice examples. These functions are critical to ensure tax collection, minimize risks for the public of risky business, create identifiable legal entities, and also to provide important statistical information on sectors, size, and own- ership of enterprises. Building the Capacity of Business Membership Organizations: Guiding Principles for Project Managers pro- vides guidelines for designing, implementing, and evaluating projects that strengthen business associa- tions, chambers of commerce, and other business membership organizations (BMOs). The publication also includes an analysis of issues typically faced by BMOs, as well as case studies and references. Leasing in Development: Lessons from Emerging Economies shares IFC's experience in building the leasing sector in developing countries around the globe. It provides an overview of leasing, examines key policy issues necessary for a healthy leasing sector, and covers tax and accounting issues. These documents are available from www.ifc.org/ifcext/sme.nsf/Content/Publications. Outcomes Outcomes is produced by the Small and Medium Enterprise International Finance Corporation Department, which provides technical support and shares information on IFC's transfer of business expertise through- 2121 Pennsylvania Ave., N.W. out the developing world. Washington, D.C. 20433 USA E-mail: Infosme@ifc.org