Supporting Business Environment Reforms: Practical Guidance for Development Agencies

Donor Committee for Enterprise Development Established in 1979 as the Committee of Donor Agencies for Small Enterprise Development The DCED works on: –Defining best practice in priority themes in participatory ways –Disseminating best practice and successful experiences –Increasing the effectiveness of development practitioners Previous donor guidance: –Small and micro-enterprise finance: Guiding principles for selecting and supporting intermediaries, 1995 (“Pink Book”) –Business Development Services for Small Enterprises: Guiding Principles for Donor Intervention, 2001 Edition (“Blue Book”)

A multi-agency view: Member Agencies Bilateral Member Agencies Agence Francaise de Developpement (France) Australian Agency for International Development (Australia) Austrian Development Cooperation (Austria) Canadian International Development Agency (Canada) German Federal Ministry for Economic Coop. and Dev. (BMZ, Germany) / German Technical Cooperation (GTZ) International Development Research Centre (Canada) Ministère Francaise des Affaires Étrangères (France) Netherlands Ministry of Foreign Affairs (Netherlands) Norwegian Agency for Development Cooperation (Norad, Norway) Royal Danish Ministry of Foreign Affairs (Danida, Denmark) Swedish International Development Agency (Sweden) Swiss Agency for Development Cooperation (Switzerland) Multilateral Member Agencies Food and Agriculture Organization (Italy) International Fund for Agricultural Development (Italy) International Labour Office (Switzerland) Organisation for Economic Co-operation and Development (France) United Nations Industrial Development Organisation (Austria) World Bank Group - SME Department (USA)

Donor-Supported Business Environment Reform Business Environment Working Group established in 2001 Research: –2002: Enabling small enterprise development through a better business environment; donor experiences in supporting reforms in the business environment –2004: Donor approaches to improving the business environment for small enterprises Conferences: –International (Cairo 2005) –Regional, Asia (Bangkok 2006) –Regional, Africa (Accra 2007)

Defining the “Business Environment” A sub-set of the broader investment climate and is comprised of three elements: –Policy and legal framework The policies, laws and regulations that affect business –Regulatory and administrative framework The ways in which policies, laws and regulations are enforced and managed –Institutional arrangements The ways in which government and business represent themselves and communicate with each other

Business Environment Policy and Legal Framework Regulatory and Administrative Framework Institutional Arrangements Sector-Specific Business Environment Regional, National and Sub-National Business Environment Investment Climate Infrastructure Open markets such as financial, labour, etc. Rule of law Political stability Economic predictability Equitable and efficient labour markets Skills and HRD

Reforming the Business Environment Development agencies support their programme partners (government and the private sector) in their efforts to reform the business environment. Business environment reform changes business behaviour in ways that lead to increased levels of investment and innovation, and the creation of more and better jobs. This is done by: –Reducing costs –Reducing risks –Increasing competitive pressures

Levels of Business Environment Reform Regional National Sub-national Sectoral

Functional Areas of Reform Simplifying business registration and licensing procedures Improving tax policies and administration Enabling better access to finance Improving labour laws and administration Improving the overall quality of regulatory governance Improving land titles, registers and administration Simplifying and speeding up access to commercial courts and to alternative dispute resolution mechanisms Broadening public-private dialogue processes with a particular focus on including informal operators, especially women Improving access to market information

1. DIAGNOSTIC PHASE Define purpose and objectives Identify main stakeholders Get the commitment Mobilize funding Analyze constraints Analyze capacity Collect baseline data 2. SOLUTION DESIGN PHASE Design high-level structure Engage stakeholders Agree overall design Develop implementation plan 4. EVALUATION AND SUSTAINABILITY Conduct programme evaluation Ensure recommendations are incorporated in new procedures Prepare programme reports Conduct impact assessments (usually done beyond the programme cycle) 3. IMPLEMENTATION PHASE Provide technical assistance Train civil servants Launch reform procedures Information campaign Fine-tune reforms based on user feedback Phases in Business Environment Reform

Key Messages A healthy business environment is essential for growth and poverty reduction Business environment reform is complex – agencies should ensure thorough diagnostic analysis, maintain a systemic approach and understand the broader causal picture Business environment reform is always political Government should lead and own reform; donors should support them Agencies should ensure the inputs and participation of all stakeholders and enhance stakeholder capacity for ongoing and future reforms Agencies should ensure systems are in place for coordination and take responsibility for the quality and consistency of their advice and assistance Agencies should sequence reforms according to context Agencies should understand and manage the implementation gap Agencies should ensure the reform process has a strong communication programme

Principles Principle 1:Adopt a systemic approach to reform Principle 2:Understand and respond to the political economy of reform Principle 3:Respond to and stimulate the demand for reform and drivers of change Principle 4:Ensure domestic ownership and oversight of reform efforts Principle 5:Strengthen the role and capacity of key stakeholders Principle 6:Focus on what the private sector needs through public- private dialogue Principle 7:Focus on the binding constraints to business growth and scope reforms accordingly Principle 8:Sequence business environment reforms and allow time

Principle 9:Address the implementation gap Principle 10:Formulate a communication strategy and use media strategically Principle 11:Work with government as the lead agent Principle 12:Align business environment reforms with national development plans Principle 13:Ensure good donor coordination Principle 14:Balance international and national expertise Principle 15:Promote quality assurance in development agency support of business environment reform

Contested Issues in Supporting Business Environment Reform Can we measure the extent to which business environment reform contributes to economic growth and poverty reduction? Should business environment reform focus on enterprises that are owned and managed by poor people? Should development agencies simply respond to demand for reform or should they also contribute to creating a demand for reform? Should development agencies support individuals or institutions? Does support for the private sector interfere with political processes? What role should government play in enterprise development?

Donor Committee for Enterprise Development