Southern Europe Regional Office: Bulevar Kralja Aleksandra 86 - 90 11000 Belgrade, Serbia Tel: +381 (0) 11 3023 750 Fax: +381 (0) 11 3023 740
Central Asia Regional Office: 36/1 Bolshaya Molchanovka Str., 3rd Fl. 121069 Moscow, Russian Federation Tel: +7 495 411 7555 Fax: +7 495 411 7556
SmartLessons is an awards program to enable IFC clients, partners, donors, and staff to share lessons learned in their dayto-day work. This brochure opens a door into a new kind of knowledge sharing. Instead of lengthy academic articles and formal reports, it presents first-hand and straightforward project stories with pragmatic useful analysis, written by professionals and for professionals. Through the prism of their own experience, good and bad, these authors aim to capture practical insights and lessons that could help advance development-related operations for private sector-led growth across the globe. While IFC supports private sector development both by investing and by providing advisory services that build businesses, this brochure focuses on advisory services in particular. IFC advisory work aims to support small and medium enterprises, to improve the business enabling environment, to accelerate private participation in infrastructure, to increase access to finance, and to strengthen environmental and social responsibility. Much of IFC’s advisory services work is conducted through facilities managed by IFC but funded through partnerships with donor governments and other multilateral institutions.
DISCLAIMER IFC SmartLessons is an awards program to share lessons learned in development-oriented advisory services and investment operations. The findings, interpretations, and conclusions expressed in this paper are those of the author(s) and do not necessarily reflect the views of IFC or its partner organizations, the Executive Directors of The World Bank or the governments they represent. IFC does not assume any responsibility for the completeness or accuracy of the information contained in this document. Please contact the program at smartlessons@ifc.org.
SmartLesson 1 Co–Branding IFC Jointly with Other Commercial Institutions in Bank Serbia—Housing Energy Efficiency Lending by Rolf Behrndt
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SmartLesson 2 Resolving Business Disputes—Introducing Mediation to Bosnia and Herzegovina by Lada Busevac
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SmartLesson 3 Five Keys to Developing Fulfilling and Lasting Country-Level Donor Relations: What the Azerbaijan Corporate Governance Project has Learned by Charles T. Canfield, Rasmina Gurbatova, and Sevinj Ibrahimova
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SmartLesson 4 Successful Launch Events Help Build Momentum for IFC Projects: Lessons from the Central Asia Corporate Governance Project by Assel Choibekova
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SmartLesson 5 Choose Your Sector: A New Path for Commercial Banks in Albania by Ledia Cirko
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SmartLesson 6 “Show Me The Money!” Quantifying The Impact Of Regulatory Simplification Projects by Sanda Liepina, Andrea Dall’Olio, and Sanwaree Sethi
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SmartLesson 7 Setback or Blessing in Disguise? Implementing Management Information Systems in Partner Banks and Leasing Companies by Patrick Luternauer and Umedjan Umarov
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SmartLesson 8 How To Assess Implementation of Business Regulations at a Low Cost within a Short Time Frame by Anvar Meliboev and Oksana Petrova
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SmartLesson 9 Fixing a Broken Recycling Supply Chain by Working With Roma Scrap Collectors by Dragan Obrenovic
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SmartLesson 10 Selling A New Advisory Product—IFC’s Experience with Promoting International Standards and Technical Regulations in Western Balkans by Selma Rasavac
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CO–BRANDING IFC JOINTLY WITH OTHER COMMERCIAL INSTITUTIONS IN BANK SERBIA—HOUSING ENERGY EFFICIENCY LENDING ROLF BEHRNDT The Corporate Branding Initiative, launched at the end of January 2007, was intended as “branding IFC,” but the approach of this project was widened to include co-branding jointly with a commercial institution. To our knowledge, it was the first initiative of its kind, and the experience gained could be relevant for many other IFC projects. The advantages are that 1) more resources can be mobilized, and 2) it uses a private sector approach. experience in Central Europe. However, IFC had no staff presence of its own to develop a public awareness The co-branding case was used in an energy efficiency campaign for the FI. Thus, the approach of cosponsoring (EE) project. There are two important points to observe was chosen, leveraging the staff of the FI to develop and in EE finance: implement a marketing campaign.
Background
1. Generally, most banks are reluctant to make the first move, believing that the product does not “sell” well. However, once one bank has taken the lead, other banks often follow suit. As a result, it is often the strategy of IFC to provide incentives to the “first movers” in any given market.
To complement the loan, and to offset the first-mover market development costs, IFC provided a grant to be used for marketing the product, and provided training in energy efficiency to the loan officers. The FI committed to contribute resources through payments to third parties and in-kind services to develop and implement a marketing campaign. The grant agreement clearly specified the mechanisms for verification. IFC otherwise restricted itself to technical and editorial clearance of the marketing items, including poster, brochure, insert, TV spot, and bus advertising.
2. Success in energy efficiency finance also depends on “moving” the final borrowers, which means building awareness of the benefits of energy efficiency investments. This is not easy in developed economies, and it is still more challenging in transition and developing economies. Thus, EE programs need to be Co-financing of the marketing campaign led to some complemented with awareness-raising activities. internal questions in the approval process: Wasn’t this a clear subsidy, where funding was being misused to provide a deal sweetener? Our reasoning was that marketing The Project is just a specific form of raising public awareness. While IFC provided a loan of €15 million to a financial in- the public would be directed toward the FI (private secstitution (FI) in Serbia for housing energy efficiency tor benefit), they would be motivated to invest in energy microloans. Basically, this is a retail product for hous- efficiency products and services, and would know where ing renovation, tied to financing specific items required to go to find financing for the investment (public sector to achieve energy efficiency (doors, windows, insulation, benefits). heating systems, and so on). In addition, we decided that if IFC is going to spend on At the time of implementation, IFC developed and con- a marketing campaign, it would only make sense for IFC ducted a two-day training course designed to inform to benefit from it by co-branding the product. Given that the loan officers regarding energy efficiency itself, and the IFC branding guidelines were issued only in January to show them how to “sell” the product to clients. Fur- 2007 and co-branding had never been done before, the thermore, IFC provided great technical input from its experience may be of interest to other projects as well. 4
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Branding Lesson 1—Use of the IFC Logo
Branding Lesson 3—Clearance from IFC Legal
Given that it was a first-time experience, IFC’s communications staff provided great moral support to ensure that all was in line with the guidelines and policies. The main lessons learned were:
Many things in IFC need clearance from the Legal department, and this case was no different. Initially, the Legal department had concerns raising potential legal and reputation risk issues. However, once the value-added aspect of co-branding was properly communicated and 1. Ensure that original IFC logos are always used! understood, the Legal Department proposed two dis(Do not copy and paste from other materials.) Using claimers, to be inserted on ALL materials developed: original logos also has the advantage of ensuring that the correct colors and forms are used. 1. “IFC” and “IFC and globe” logos are the service marks of the International Finance Corporation. 2. Review the final layouts before printing! While this sounds quite simple, a great amount of time 2. IFC is not responsible for administration of opwent into going through the many marketing mateeration of the energy efficiency lending program. rials, and supervising third-party PR work on behalf of IFC. These disclaimers can be adapted to the purposes of any specific project. Branding Lesson 2—Slogan Not all cultures have the same notion of legal implicaSlogans can be easily adapted to the project at hand. The tions, however. In the Serbian context, we were afraid slogan, “Energy efficiency lending is supported by the these disclaimers might be counterproductive to the mesInternational Finance Corporation,” was introduced as a sage we were trying to convey to the public. In the end, it so happened that our marketing slogan was translated part of co-branding for the following reasons: into Serbian, but the disclaimers were left in English. 1. We wanted to indicate to other financial institutions what IFC is prepared to do (that is, indirect Within the TV spot, the Legal Department also suggestmarketing of IFC and hoping other financial institu- ed using different voices for the FI and IFC slogans, to tions would come to us as well for EE lending). better distinguish the organizations. 2. We wanted to demonstrate a certain degree of Thus, we arrived at the final version of the final screen intellectual leadership. shot of the TV spot. 3. We wanted to make the product itself look more attractive.
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Results About the Author
The results speak for themselves: More than 540 loans (worth about ₏1.8 million) were disbursed in the first three months. Getting hard facts regarding the impact on public awareness is difficult. It would have required investing just as much into measurement of public awareness, and it is not always reliable (much like surveys before elections). Anecdotal evidence suggests that the public has recognized the logo and seen the advertisements. However, should we want to build up a worldwide, publicly recognized brand as a development financing agency, continuous effort would be required. Furthermore, two investments with energy efficiency components are presently being discussed with commercial banks in Serbia where this campaign may have played a role. The lessons above allow for simple replication. More discussions would be needed to determine whether cobranding/marketing is a practical use of IFC’s funds. The experience shows, however, that leveraging the potential of private sector organizations through co-branding allows for greater recognition in the public than we can possibly achieve alone.
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Rolf Behrndt is a Senior Operations Manager for Access to Finance at IFC Private Enterprise Partnership in Southern Europe (PEP-SE) in Serbia.
Published in November 2007.
RESOLVING BUSINESS DISPUTES—INTRODUCING MEDIATION TO BOSNIA AND HERZEGOVINA LADA BUSEVAC Alternative dispute resolution (ADR) is a term very often used to describe a variety of mechanisms considered as alternatives to the formal court process, such as arbitration, mediation, minitrial, settlement conferences, etc. This paper seeks to describe the results and lessons learned while introducing mediation in the Western Balkans, specifically Bosnia and Herzegovina.
performance and reduction of direct and indirect costs related to dispute resolution. Mediation may just prove The Private Enterprise Partnership for Southeast Europe to be one of the solutions for the problem of backlogged (PEP-SE’s) ADR project encourages private sector per- cases, overdue receivables, breaches of contract, etc. formance and investment by offering companies and individuals a quicker and cheaper alternative to highly Institutionalizing Mediation through Courts inefficient and expensive court procedures. In Bosnia and Herzegovina, there are 64 courts and 1 million After working on setting up the legal framework for backlogged cases, i.e., 15,000 cases per court. According mediation, training mediators and judges in mediation to the High Judicial and Prosecutorial Council and the techniques, and undertaking tailor-made and focused president of the Association of Mediators, at least half of public awareness campaigns, PEP-SE focused on the these cases could be referred to mediation, substantially institutionalization of mediation through court-referred reducing the backlog and thus increasing the courts’ ef- mediation pilot projects aiming to test the acceptance ficiency. and effectiveness of mediation. Two pilot projects were initiated in cooperation with the Association of MediaAnalysis of the small and medium enterprise (SME) sec- tors (AOM) in Bosnia and Herzegovina – one in Banja tor’s level of satisfaction with the court system produced Luka’s Basic Court, and another in Sarajevo’s Municipal by the Sarajevo Chamber of Commerce in 2004 may Court. help in shedding light on another burden of the court system: the problem of company funds blocked in long and expensive court procedures. This analysis shows that ADVISORY BOARD an SME in the Sarajevo region has on average of 21 cases pending court decision for more than 3 years. The cuIFC mulative value of these 21 cases (original claim value) for SMEs is about US$250,000. Direct costs, averaging 40 percent of the claim value, include attorneys’ fees, court taxes, and penalties. Indirect costs, such as legal Association of COURT staff working on case preparation, administration, etc., Mediators also add to the cost of the business dispute being filed in court. Simple math tells us that that if a company has a claim of US$250,000 at a court in Bosnia, the minimum MEDIATION CENTER additional cost for a company will be US$100,000.
Project Background
At the same time, businesses, either domestic or foreign, require swift solutions when it comes to contract enforcement, especially ones that would lead to better business SmartLessons
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The pilot project structure is quite simple. The partner court selects cases for mediation,1 and an independent, IFC-supported AOM mediation center schedules mediations, coordinates mediators, and maintains a database of mediations held, outcomes of these sessions, and complete statistics of acceptance of the outcomes of the mediation, types of disputes, total values being mediated and agreed upon, etc. The AOM provided local mediation expertise and advice for the pilot project management.
telement of subsidy. It was decided that the operations of the mediation centers would be subsidized by IFC. However, a mediation fee (also subsidized) would be charged for the service, and a mediation fee collection system was introduced during the pilot phase of the project.
The Association of Mediators generated € 9,000 from these fees over the first 9 months. This was sufficient to cover up to 40 percent of the centers’ overhead expenses. The centers charge a flat fee of € 60 per hour to parties in commercial mediation. This fee is stipulated in the To ensure the full synergy of the initiative and greater by-laws governing mediation. The by-laws also state that transparency of the project’s decisions and results, each the maximum length of a mediation session should not pilot project has its own advisory board, composed of exceed three consecutive hours. representatives from the Justice Ministry, AOM, partner court, High Judicial and Prosecutorial Council, Law Early results during the pilot phase on acceptance of Faculty, and IFC. The diagram shows the stakeholder re- payment were encouraging. Monitoring and evaluation lations in a pilot project. (M&E) analysis shows that close to 70 percent of the parties that have used mediation are willing to pay for By having the advisory board meet regularly and discuss it. issues pertinent to mediation pilot project implementation, the entire initiative gained greater confidence Measuring Impact within the local community and government institutions, leading to broader acceptance and a local sense of After three years of project implementation, the results ownership. confirm that enforcement of commercial contracts overall is facilitated by means of commercial mediation.
Financing Mediation The team tackled the issue of the long-term development of mediation and its sustainability from the program design phase. Evidence from across the globe shows that subsidized mediation can only work for a limited period of time. To allow mediation’s long-term inclusion into the court system, or society in general, its sustainablity needs to be assessed and nurtured. In a typical developed-country context, mediation clients pay for the service (although costs are occasionally subsidized by the government or courts). The team recognized that the government, with its competing priorities for developing its postwar economy, was not going to provide the financial support necessary to set up and promote mediation as a public good. The project design would therefore have to foster a commercial approach to the development of mediation while building in some
When it comes to measuring impact by cases being referred and resolved, the results so far are mixed. Evidence from the pilot projects shows that acceptance of mediation from parties in dispute that get referred by courts to this form of dispute resolution is still relatively low. In the Sarajevo pilot project, the rate is 10 percent, while in Banja Luka it is 25 percent. That means that of 1,000 cases that get referred to mediation, 100 and 250, respectively, agree to try mediation.
Has participation in mediation increased your trust in the legal system? Pool of Answers: 99
Not sure 4%
No 3%
Da 93%
1 Law on mediation procedure passed and all necessary by-laws enacted, allowing broad use of mediation before and after the court procedure.
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even more than 100,000 KM.” Helping businesses get funds released: In the 24 months since the opening of the first mediation center in Banja Luka, 474 mediations took place, with a success Lessons Learned rate of 56 percent. The amount of funds released after the signing of the mediation agreements is close to € 8 x Work with local institutions at the outset to million. M&E survey analysis shows that companies that create an exit strategy – The agreed exit arrangereceived long-overdue receivables through mediation ment in this case was to create a developmentally used 72 percent of the funds to cover current liabilities, sustainable initiative after three or four years of 8 percent of them got reinvested, and 20 percent were project activity that would be transferred to a reliused for other purposes. able local partner who had been properly trained to take over this responsibility. Early transfer to Trust in the judiciary: Other indicators, such as inthe AOM of long-term responsibilities for the creased trust in the judiciary, measure indirect effects. management of the mediation centers allowed The diagram above shows the responses of the surveyed IFC to prepare for a gradual scaling down of its parties (100 respondents making a representative sample) involvement. For projects such as mediation, that used mediation in the Banja Luka Mediation Center this is very important, given that the needs of as to their increased trust in the judiciary: the project extend well beyond the timescale of the project. Testaments on the Outcomes x Engage judges and lawyers to act as main catalysts of change – For a real change to start hapOne of the first mediations that took place in the Banja pening at the institutional level, we need people Luka Mediation Center resolved a commercial dispute such as judges and lawyers to play a catalytic role that had been stuck in court litigation for over three in winning widespread acceptance of mediation years. Even though the amount in question was substanas a viable alternative. How to make them adtial, it was the cost of the procedure and its absurd duravocates of change? Extensive training and edution that threatened to permanently disrupt any prospect cation in mediation free of charge to as many of future cooperation between the two companies. judges and mediators as possible. This was the breakthrough tactic in the case of Bosnia and ”In addition to court fees and litigation expenses – which Herzegovina. were substantial, considering that we had 16 hearx Identify and support professional bodies like ings – we suffered further losses as a result of constant the Association of Mediators – A key lesson engagement of our employees on collecting evidence to learned from the Bosnia and Herzegovina project substantiate our claims. Mediation has radically shortis that it is of utmost importance to have a comened the procedure and saved us a lot of money,” noted mitted local partner from the outset. IFC’s role a manager of one of the parties that reached agreement was very important in facilitating the process of through mediation. He continued: “Only thanks to developing the Bosnian Association of Mediators open communication, without impeding legal restricby providing direct advisory services and mobitions and formalities, were we able to reach a mutually lizing other donors and partners with complesatisfactory solution in less than two hours.” menting mandates, while at the same time preparing a sound exit strategy. For example, IFC The quote below from a business manager who took part mobilized the local Canadian International Dein IFC’s focus group survey is a clear illustration of the velopment Agency (CIDA) office to provide adlasting and powerful impact of mediation on businesses: ditional funding to the AOM to prepare its own four-module training program for mediation, “I have resolved a total of 3 million KM (Konvertible supported a strategic planning exercise for the Marka) disputes through mediation in just 180 minAOM, and helped develop structured internal utes – 16,543.81 KM per minute. My personal opingovernance mechanisms. This focused support ion is that it is better to have 50,000 KM today than has helped the AOM start preparing properly 100,000 KM in a year, because you can invest this in to take on nationwide training, registration, and equipment and production materials today and earn SmartLessons
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certification for mediators. x Design mediation centers to be the AOM’s profit centers – At the micro level, each center will have its own approach to market development and revenue generation, depending on market needs. Their services will include training, mediation consulting, mediation services, etc. As soon as possible, these centers should achieve profitability (or at least reach a break-even point) in order to ensure long-term sustainability. x Develop mediation as a profession – Once the infrastructure is set up, independent for-profit mediators should be encouraged to enter the market and start working on attracting clients. It is essential to provide world-class training to mediators from the project get-go. Their performance will define the pace of mediation development and the rate of “repeat” clients. The training must be continuous and according to internationally accepted standards. IFC’s role is also very important in finding the right local and international institutions to provide this training, and where necessary in tailoring their program to fit the needs of the local realities. It is still too early to say if the market will develop to allow full market contact between the supply side (mediators) and the demand side (parties in dispute), since mediation is still being tested through pilot initiatives.
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About the Author Lada Busevac is an Operations Officer and ADR Project Manager at IFC PEP-SE in Bosnia-Herzegovina.
Published in August 2006.
FIVE KEYS TO DEVELOPING FULFILLING AND LASTING COUNTRY-LEVEL DONOR RELATIONS: WHAT THE AZERBAIJAN CORPORATE GOVERNANCE PROJECT HAS LEARNED CHARLES T. CANFIELD, RASMINA GURBATOVA, AND SEVINJ IBRAHIMOVA Much of IFC’s advisory services work is conducted through facilities managed by IFC but funded through partnerships with donor governments and other multilateral institutions. Such donors are vital partners for IFC and maintaining good donor relations is paramount to making IFC’s advisory services work. The IFC Private Enterprise Partnership (PEP) Azerbaijan Corporate Governance Project (ACGP) benefits from financial support of the State Secretariat for Economic Affairs of Switzerland (SECO).1 The goal of the project is to improve the corporate governance practices of Azerbaijani joint-stock companies and banks, thereby helping them gain easier access to capital. At the IFC PEP-SECO semiannual meeting held in Lviv, Ukraine in April 2007, ACGP was cited by SECO as the model that other projects should follow regarding maintaining a good donor relationship. This recognition is the result of ACGP’s efforts over the last three years, and the lessons learned from this experience are discussed below. 1. Establish and maintain a good working relationship 2. Enable the donor to feel like a member of the with ALL of your donor’s representatives related to team. your project. The Project organizes regular “meet the staff” meetings In general, the IFC PEP-SECO partnership is managed with the country representatives so that they can get to at the senior level primarily by the IFC PEP General know the staff and understand each person’s role in the Manager, with semiannual reporting to SECO’s office in Project. These meetings also ensure that every member Bern; however, a good, and perhaps overlooked, practice of the Project team understands the importance of the is to establish a relationship with the country representa- donor and that each member knows the donor country tives by the Project Manager and other staff. Such repre- representatives by face and name. Before staff met the sentatives can be great allies, as they constantly commu- SECO Regional Director for the first time, the ACGP nicate with the head office, and your successes are their Project Manager circulated his photo via e-mail with the right spelling and pronunciation of his name. successes as well. When ACGP started, there was no Swiss representative in Azerbaijan; however, shortly thereafter, SECO announced that it would post a Swiss national in Baku. Even before the representative’s arrival, the Project Manager established a relationship with him and served as a source of information, both on work-related matters and on information related to life in Baku. Moreover, the IFC team strategically planned the date of the Project’s official launch to coincide with an initial visit by the SECO representative so that he could speak at the event. This has grown into a professional and congenial relationship. ____________ 1
SECO is the Swiss Confederation’s competence center for all the core issues related to economic policy. It is also involved in efforts to reduce poverty and help developing countries with transition economies build sustainable democratic society and viable market economy. As of February 28, 2007, SECO supported nine IFC PEP projects.
During the meetings, each team member gives a concise update on his or her current work. It provides a good opportunity for the donor to express any concerns about the Project activities. ACGP found it more efficient to discuss any concerns at such events, rather than at the formal semiannual meetings. Another team-building effort is the practice of discussing any major undertaking with the donor before commencing the activity. For example, ACGP discussed beforehand with SECO a plan to execute a Memorandum of Understanding (MOU) with a Project partner and the selection of various pilot companies. While SECO always agreed with the Project’s undertakings, its representatives felt informed and provided better support than they would have if they had found out about the changes after the SmartLessons
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fact. Moreover, SECO’s representatives often offer sound advice that can make a good initiative even better. To promote the spirit of collaboration even more, we started sending jointly signed cover letters to recipients of major Project publications. For example, the Project Manager and the SECO Regional Director signed cover letters accompanying the official Azerbaijani translation of the OECD Principles of Corporate Governance and the ACGP Corporate Governance Survey Results that were sent to over 250 companies, banks, and other Project partners. Also, it is very important to make sure that the donor is aware of changes in staffing and recruiting. Whenever a person has left the team, the ACGP Project Manager promptly informs the SECO Regional Director. 3. Keep your donor informed. We found that the local SECO representatives appreciated periodic updates; however, given all of the administrative reporting in IFC, the Project did not want an additional layer of reporting. To this end, the Project Manager agreed with the local representative that an informal e-mail every other month would be sufficient. This schedule was chosen because the Project prepares information for the IFC PEP internal bulletin, “PEP Insider,” which is circulated every two months. Keep the donor informed about future events well in advance. Along with the Project update e-mail, the ACGP Project Manager sends the SECO country representati-
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ve a list of planned and tentative events. In addition, monthly informal luncheons with the donor representatives are held, which is another good way to keep them informed. Become a source of information for the donor. Occasionally, SECO country representatives request information beyond the scope of the project area. For example, ACGP is a good source of information on the banking and financial sector in Azerbaijan due to its work with clients in this sector. Without divulging any confidential client information, the Project has provided helpful information to SECO country representatives as it funds other projects in the sector. Additionally, the Project often refers SECO to other individuals with whom the Project has contacts who are better suited to answer certain questions.
4. Allow the donor to use the Project as a vehicle to benefited their company. Such preparatory work can pay huge dividends. For example, during an official MOU promote its presence and visibility. signing ceremony, a frequent client of ACGP thanked a) Invite the donor to all Project events, and, if warranted, SECO and its Regional Director by name on national ask one of the donor’s country representatives to speak or television. Such recognition is much appreciated by doparticipate in any formal opening ceremony. If you ask nors. the donor to speak, provide him or her with adequate background information on the event to clearly outline c) Ensure the donor’s visibility at your events and in your the issue and the message that the Project hopes to deliver. office. The ACGP keeps the donor’s banner displayed For example, when the ACGP asks SECO representatives prominently in its office conference room. Additionally, to speak at its events, the Project Manager will send the the Project purchased a number of small Swiss flags relevant person an agenda, speaking points, and/or a that are displayed on various desks and common areas “scene setter” which explains the event and informs the throughout the Baku office. Hence, whenever client speaker who else will be speaking and attending the event. meetings are held in the office, the donor’s visibility is After events, ACGP always sends “thank you” e-mails to insured. The SECO banners and flags are always put on the donor for their participation, along with copies of display at Project events. In fact, special effort is taken to strategically display the SECO banner when the event any newspaper stories about the event. will be televised. At the last PEP-SECO meeting in b) During Project events, the appropriate project staff should Lviv, the ACGP Project Manager showed SECO a video make efforts to introduce the donor’s representatives to Project montage of the Project’s television news appearances in clients and partners. Make sure that Project clients and Azerbaijan, and the donor was pleased to see its banner partners, and especially government officials, understand so prominently displayed. how important your donor is for the success of your If you invite outside experts to present at seminars or project and, ultimately, its clients and stakeholders. conferences, make sure you provide them with sufficient information about the donor so that they understand An event that helped promote this notion was a client/partner reception that was organized for SECO representatives from Switzerland during the April 2006 Baku PEP-SECO semiannual meeting. At that reception, SECO representatives from Switzerland met with Project clients and partners, such as Ms. Naida Saidigova, who was the first lecturer in Azerbaijan to deliver a corporate governance course based on ACGP’s model university course. SECO representatives commented that they really enjoyed meeting people like Naida because that gave them a chance to match a face and a person with the plethora of stories and numbers contained in written periodic reports. The Baku team spent time preparing the clients before SECO’s visit by distributing to them a short one-page note on SECO and how SECO had SmartLessons
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who sponsored their participation. Also, always provide information about the donor in your press releases and while communicating with the media, to increase the likelihood that the journalists will mention the donor and its activities. For example, whenever Project staff open or moderate a Project event, the individual acknowledges and thanks SECO (at least once – by full name “the State Secretariat for Economic Affairs of Switzerland”), and if SECO representatives are present, they are thanked individually by name.
c) Be cheerful and sincere. ACGP staff members feel lucky to have a donor like SECO, whose representatives are reasonable and easy to deal with. The relationship should not be false and appear that you are only doing the above to obtain or secure funding. Remember that it truly is a partnership and should be managed as such.
Conclusion
Good donor relations ensure smooth running of the project and benefit IFC in general as it periodically prod) Be sure to include the donor’s name and current logo on poses new projects to SECO and often requests extenpresentations, project publications, and conference/seminar sions of existing projects. For example, following the April meeting, SECO granted a fourteen-month extenbanners and agendas. sion to ACGP. The SECO country representative noted that it was an easy give to extend such a project. Hope5. Be honest, available, and sincere. fully, some of the above recommendations will help dea) Be open and honest. Donors will respect you and trust velop the best of donor relations. you for your honesty. If you make a mistake, admit it, apologize, and make sure that it won’t happen again. Don’t make excuses or try to cover up an error. For example, About the Authors there was an instance when ACGP had a very busy Charles T. Canfield is the Project Manager for the period and several consecutive events. Unfortunately, IFC Azerbaijan Corporate Governance Project. the Project failed to send SECO an agenda for one of the events that we had invited them to attend. The day Rasmina Gurbatova is the Communications Assobefore the event, we contacted the donor to remind them ciate for the IFC Azerbaijan Corporate Governance of their participation. When the donor said they had Project. not received the agenda, the Project Manager promptly apologized for the oversight and accepted responsibility. Sevinj Ibrahimova is the Team Assistant for the IFC The donor representative understood and was happy to Azerbaijan Corporate Governance Project. receive the agenda shortly thereafter. Note that due to the Project’s constant communication with the donor, the representative was well aware of the event and it was not a big surprise. That, along with the Project’s past Published in May 2007. record of open communication and good faith, meant that the oversight was seen as minor by the donor and soon forgotten. b) Be available, responsive, and punctual. An IFC Project Manager’s responsibilities include a certain degree of travel. Nonetheless, the Project Manager or designee should always be available to the donor. If travel takes a Project Manager away from the project for a significant amount of time, let the donor know who they can contact during this period. Also, the donor will appreciate it if you can be easily reached. The same approach should be applied to donor requests. Moreover, don’t be late to meetings or cause delays in starting events on schedule, especially with the Swiss! 14
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SUCCESSFUL LAUNCH EVENTS HELP BUILD MOMENTUM FOR IFC PROJECTS: LESSONS FROM THE CENTRAL ASIA CORPORATE GOVERNANCE PROJECT ASSEL CHOIBEKOVA The first impression of an IFC Advisory Services project in a country is highly affected by how well the project is launched. This paper comprises recommendations for the new IFC advisory services projects on how to organize a successful launch event based on lessons learned from the Central Asia Corporate Governance Project, launched in 2006, and other similar projects in the region. We believe that the first impression of the project is a gauge for future effective performance.
Background IFC PEP initiated a three-year Central Asia Corporate Governance Project in 2006. IFC has promoted corporate governance reform and had or has been running projects in The Commonwealth of Independent States (CIS): Russia, Ukraine, Georgia, Azerbaijan, and now Kazakhstan. We are fortunate that the Central Asia Corporate Governance Project is the newest project in the CIS, as we are privileged to develop our project based on borrowing successes and lessons from the other projects. Our experience shows that a well-executed official launch event allows achievement of the following objectives:
Lesson 1. Clear planning of a “to do list” and corresponding deadlines is vital: Start to prepare for the launch event at least two months in advance. It takes efforts from the whole team, while one employee should be responsible for coordination and monitoring. Organize individual meetings to introduce your project to potential clients and counterparts. The experience shows that face-to-face meetings work most effectively. Prepare all marketing materials that should be presented at the launch event, and work on developing the project’s web site, so that all the interested parties can find the information on your project. Experience: 80 percent of the representatives of companies and 72 percent of the media professionals whom the project staff had met with individually attended the launch.
x Announcing the official commencement of the Launch Reception – “TO DO list” project’s activities x Liaising with potential counterparts and clients # Actions x Raising awareness for business community Develop a database of potential clients x Promoting media coverage 1. of the project. x Attracting the attention of state officials to corChoose a date and style for the project porate governance issues. 2. launch.
Preparation for the Launch Event Take the time to make the organizational part and logistics perfect before the event, including preparation of promotional materials. Special attention should be given to liaising with the mass media. Arrange face-to-face meetings with potential clients and counterparts of your project.
Timeframe (before event) 2 months 2 months
3.
Work on promo materials: the project’s information brochure, banner, flags, web site, and other useful marketing materials.
2 months
4.
Prepare an invitation card and envelopes in the IFC corporate style.
3 weeks
5. 6.
Define speakers. Organize individual meetings with companies and media.
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3 weeks 1 month
Recommendation: Various styles of the project launch can be chosen to represent your project. One IFC project used the premises of the Embassy of the donor organization for its project launch and invited the Ambassador, who had a warm 40-minute conversation with the mass media. In return, journalists liked the open atmosphere and wrote many positive articles. Two other projects used 5-star hotels. Another project organized a photo contest beforehand, and on the launch day announced the winners. The style of the project launch can be affected by the venues that are available in the city. In Almaty, our project decided that brief speeches in a cocktail reception format would work best.
Press Conference
Launch Reception
Recommendation: Give as much information as you can to the journalists. Besides a press release with names and titles of the speakers, provide them an information brochure and articles about your project, and research any other useful information on your business line. Again, 72 percent of the mass media representatives whom the project met with individually showed up at the launch event. So find time to explain your project in the framework of face-to-face meetings.
This is a chance to show that an IFC advisory services project has come to your country. Lesson 2. Demonstrate how professional the IFC staff is.
Lesson 3. Build relationships with mass media. A strong supply of information about the project is vital for a positive IFC image. Experience: A press conference was held immediately before the official launch event just outside the room where the reception was held. Some 29 representatives of 15 leading mass media organizations in Kazakhstan participated. In all, 16 media outlets broadcast this event in Kazakhstan, the CIS, the U.S., and even Spain! The press conference unexpectedly started late, so we were at first nervous because reception guests were arriving and had to walk by the press conference. We were lucky, though, as instead of being a problem, the situation turned to our advantage -- many reception attendees were excited to watch a press conference with so many media people attending, which, in turn, made them more excited about our project.
Experience: The launch reception took place on October 17, 2006 at the “Intercontinental Ankara” Hotel in Press Conference – “TO DO list” Almaty, Kazakhstan. More than 127 representatives from joint stock companies, educational institutions, and the Timeframe government participated, including Senator Utebaev, # Actions (before event) Chairman of the Committee on Budget, Finance and Develop a list of media compaEconomy of the Senate of the Republic of Kazakhstan. 1. 2 months Recommendation: Make every team member a promoter. At the launch event, the entire team attended and was professionally dressed. Everyone had studied the goals and future activities of the project to be able to speak knowledgeably and enthusiastically about it, and to project a professional image. Our team also understood that, while it was an enjoyable party, our reason for being there was professional and therefore we were to all make an effort to mingle among the guests, introducing ourselves and the project to as many people as possible. 16
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2. 3. 4.
nies. Organize individual meetings with journalists. Write a press release. Disseminate press release, brochure, marketing materials.
1 month 3 weeks The day of the press conference
Additionally, the project’s web site (www.ifc.org/cacgp) started functioning almost simultaneously with the Lesson 4. Attractive promotional materials, including launch event! All interested parties could browse news an information brochure, file folders, and web site, and corporate governance related information on the are ingredients of IFC’s image. Be professional when web site. The web site would not have been as effective if we had delayed its start until long after the launch event. presenting information about the project. The project materials at the launch event referred to the Recommendation: While developing the brochure web site, and it would have been awkward if prospective clients had tried to visit our site and it did not work. about your project: Promotional Materials
x Personalize the welcome introduction; include a photo of your Project Manager. x Detail the project activities. x Give information about IFC and other donor organizations. x Give proven statistics from IFC’s experience, for example:
After Launch Event activity Lesson 5. Be proactive after the launch event. After your potential clients and counterparts have learned about the unique IFC project, do not give them any chance to forget.
Experience: The Central Asia Corporate Governance project conducted the first seminar, “Introduction to Corporate Governance: Board of Directors,” for 46 representatives from 29 companies two weeks after the launch event. We informed potential clients about this seminar at the same time we invited them to the launch party, both to be more efficient and to create excitement Experience: To coincide with through the momentum of the project’s activities. the project’s launch, the Central Asia Corporate Governance Project published the first issue of a 20-page quarterly “Bulletin of Corporate Governance.” The project published an interview with Karl Bach, the Project Manager, along with staff introductions and updates on the project’s activities. It also included interviews with Gorton de Mond, IFC Regional Representative, and project partners such as the head of the Association of Financiers of Kazakhstan. In addition, the bulletin provided information about IFC and a brief history of its corporate governance program. The project About the Author has since been receiving positive feedback regarding continued subscriptions. Assel Choibekova is a Communications Associate for the IFC Central Asia Corporate Governance Project in Kazakhstan. As of December 2005, more than 7,231 companies in the CIS had consultations on corporate governance with IFC and attracted investments of more than $486 million, including $41 million from IFC.
Published in January 2007. SmartLessons
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CHOOSE YOUR SECTOR: A NEW PATH FOR COMMERCIAL BANKS IN ALBANIA LEDIA CIRKO The Advisory Services Facility in the Balkan region, SEED1, adopted new techniques to increase lending of local banks to the private sector when its previous approach of improving the quality of the business proposals submitted to the banks in Albania didn’t meet its desired goals. These techniques consisted of sound sectoral analysis to identify potential investment targets, staff training in credit analysis and providing consulting services to the clients. This note also highlights that listening to the clients’ needs and understanding clients’ strategies helps to focus and save resources, ensuring customer satisfaction and achieving measurable outcomes, hence leading to long-term sustainable impacts.
Background Despite the efforts by SEED since its establishment in 2001, the number of companies that actually accessed finance from local banks based on its assistance was not high enough to achieve the desired overall impact. Banks in Albania were at the early stage of their lending operations. The volume of the loans given to the private sector was limited and banks had the luxury to select from a large pool of private companies operating in the market. Given the limited number of loans the banks were performing through internal analysis, they did not see the benefit of detailed business plans prepared by outside parties. Meanwhile, the private companies were 100 percent sure of their new endeavors and believed they didn’t need any outside parties to confirm their ideas and engage outside consultants to develop feasibility studies. At that point, SEED adopted a new strategy during project implementation and shifted to the “platform base approach.” Instead of working with a single client company, major key stakeholders were approached and offered a package of services bringing access to more clients in groups. This was complemented by the process of identifying potential investment opportunities through careful sectoral analysis. Based on these approaches, a new program was designed with a private bank (referred to as “the Bank” from here on) – also an IFC client and one of Albania’s major private banks – as the key partner. __________ 1
SEED was IFC’s technical assistance facility in the Southeast Europe region from 2000 to 2005. After 2005, the advisory service facility continued under the name Private Enterprise Partnership Southeast Europe (PEP-SE), with a mandate to develop the p rivate sect or i n c ountries i n S outhern E urope unt il 2010.
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At the time of the program, the Bank had one of the biggest networks among private banks, with over ten branches in main cities. The bank had rapidly grown in the previous few years. Due to such rapid expansion, the Bank was committed to enhancement of the staff’s skills and to increase its SME loan portfolio in Albania considerably.
Goals of the project SEED’s goal was to improve the capacity and the market knowledge of the bank in order to increase its client base. SEED’s intervention was focused on three main areas, described below: 1. Sector Studies: SEED prepared sectoral studies for the bank to collect all the information needed to identify the sectors of interest for new investments. Seven sector studies were prepared for the bank including: construction & construction materials sector; food processing; soft drinks and beverages; flour production; meat processing; steel and aluminum; and tourism. 2. Training the Bank staff: SEED offered different training modules for the Bank staff. In FY04, we prepared and delivered four training modules as follows, two of which were repeated during FY05 with the new staff of the Bank: x Credit Analysis and sales of credit products – Junior level x Credit Analysis – Intermediate level x Credit Risk Management – Advanced level x Branch Management
3. Consulting with existing/potential clients: SEED offered direct consulting to SMEs that requested financing for new projects and assisted companies in preparing feasibility studies for new production lines.
compared to GDP, sector growth, level of imports and exports, number of registered companies operating, geographic distribution of the industry, etc.
All the above information was used to determine the level of demand and key drivers in the sector, level of supply, Following the above measures, the package offered to the key players in the market, SWOT analysis for the sector, Bank increased considerably the percentage of loans is- cost analysis and pricing etc. Each study based on the sued to the private sector in Albania as well as the num- analysis conducted highlighted some main recommenber of clients supported in the private sector. dations regarding the future of the sector which would help the bank to determine its future strategy. Lessons Learned Lesson 1: Identify the areas of lending through extensive sector studies Sector studies proved to be highly efficient and more important for the bank. By understanding the overall sector performance, trends and benchmarks, credit analysts could better analyze clients, even small ones. This was even more relevant in cases where it was not feasible for the companies to do a cost-benefit analysis with external consultants by requesting a deep business proposal. The main focus of these sector studies was to provide the bank with sufficient information to make informed decisions on lending to SMEs in those sectors. The methodology used in these studies included both primary data, collected through direct questionnaires with companies operating in the sector, and secondary data, based on analysis of statistical data collected by Institute of Statistics, relevant ministries etc. The design of questionnaire and data collection process as well as data analysis and studies were prepared by outside consultants carefully selected by SEED. In addition, the process was closely managed, supervised and reviewed by internal staff in charge of quality assurance of the support given by IFC to the Bank. Through direct questionnaires we were able to identify the level of supply in the market, size of the companies (turnover, number of employees), technology used, level of new investments made by these companies as well as the sources of these investments (own funds, bank loans or other) etc. In addition, these questionnaires helped identify the key issues and challenges facing companies in the respective sector, perceived competition etc. Extensive information and data were collected through secondary sources focused on the sector’s output, size
The studies proved to be an excellent tool for the bank to determine its future strategy. The Bank considerably increased its loan portfolio, becoming an active player in the market. This is especially important knowing that the Bank started its lending activities only in late 2001. Based on the sectoral studies prepared by SEED, the Bank increased its loan portfolio and the number of clients in six of the seven sectors studied. During 2004, the total amount of loans injected in these sectors accounted for 41 percent of total loan portfolio. The size of each individual loan varied between US$100,000-US$1,000,000. The number of loans given out and the number of clients increased in almost all the sectors (construction, food processing and wood processing). In wood processing and meat processing the increase in new loans was as high as 65 percent. The only exception was in the tourism sector where the Bank changed its loan policy toward companies operating in this sector by reducing the number of loans given in 2004. The percentage share of loans to this sector had dropped significantly in 2004 compared to 2003. The study highlighted that the Albanian tourism sector was facing challenges such as lack of infrastructure, lack of good facilities, high prices compared to the services offered and high competition from the region. The study also identified where the new focus of investment in tourism should be. Lesson 2: Train the Staff By training credit staff involved at all levels, the bank could use the sector studies to perform a comprehensive analysis of the clients, and as a result make sound decisions. Through training of branch managers and senior managers on credit risk, the bank created the basis for establishing lines of credit approval which were absent SmartLessons
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until 2005. Before then, all credits at all levels were cen- issues were similar, sometimes credit analysts and officers felt that local market and local companies had specific trally approved by the Credit Committee. issues which made their work more difficult. This probably false illusion could be overcome if case studies were based on real bank clients. Lesson 3: Collect data for sector analysis and choose the right software for data analysis
Training Course “Credit Course-Intermediate Level” at the Bank
The main focus of the training was for credit analyst and officers (at all three different levels). Each of the training modules included a three-day session. The modules had a good combination of presentations, individual exercises and group exercises. All the modules were based on best practices used by banks in lending operations and branch management. The level of information provided in each of the training courses should provide for a natural flow of information and learning for staff progressing from credit analyst to a higher level in the credit department. The “Junior Course” was mainly focused on best practices with regards to loan interviews and applications, marketing and banking services, fundamentals of creditworthiness and financial analysis. The focus of the “Intermediate Course” was concentrated on the credit policy of the bank, client analysis, business/sector specialization and preparation/presentation of the credit memorandum. Meanwhile, the “Advanced Course” mainly addressed credit policies and principles, risk management, risk classification, early warning signs, etc. When training bank staff on credit issues, it is imperative to tailor the course based on the credit strategy and credit manual of the bank and create real life examples based on actual clients and credit files. To improve the training program for the future, we should use case studies based on the Albanian markets. Most of the case studies used by the consultants were based on similar companies from markets not in Albania. Though 20
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It would be beneficial to include assistance with building a toolkit to keep a record of data on sector benchmarks. This component was missing from the support offered to the Bank due to limited resources and the timeline. However, having such a component in place would lead to long-term benefits as it would allow the local banks to keep a record of key indicator benchmarks for the sectors in which they operate. Financial information of client companies is crucial in creating standard sector benchmarks which would assist the bank in evaluating new clients and creating a better understanding of the market, sector and trends. Collecting and processing financial information with regard to the sector analysis, although important, is also a tedious part of the process that requires much consistency and accuracy. Well-designed toolkit that collects, stores and elaborates on the main financial indicators collected from the new and existing clients could be our answer. Given the fact that in emerging markets collecting standard data from clients is very difficult, such a toolkit would be beneficial if it was coupled with an on-line form of reporting from clients. Such information could be further elaborated in calculating the required indicators and benchmarks. Finally this information would also help banks during the periodic monitoring process of their clients and in identifying potential early warning signs.
About the Author Ledia Cirko is an Operations Officer at IFC PEP-
Southern Europe office in Albania.
Published in September 2007.
“SHOW ME THE MONEY!” QUANTIFYING THE IMPACT OF REGULATORY SIMPLIFICATION PROJECTS SANDA LIEPINA, ANDREA DALL’OLIO, AND SANWAREE SETHI IFC Private Enterprise Partnership ( PEP) has developed the following methodology to measure and attribute the economic impact of its national-level Business Enabling Environment (BEE) Regulatory Simplification Projects in Eastern Europe and Central Asia. By comparing specific aspects of the business environment before and after IFC-supported reforms are enacted by the government, it is possible to quantify the benefits accruing to the target population, i.e., the aggregate cost savings to businesses. IFC PEP understands that under ideal circumstances, impact assessment would involve the use of experimental analysis to compare the counterfactual of an IFC intervention rather than a before/after comparison. However, given that in our region the relevant legislation exists at the national level, it is not possible (or advisable) to construct municipal-level comparisons for the sake of impact assessment. We believe that this methodology provides a sound alternative in cases where project intervention occurs at the national level, i.e., in cases where it is virtually impossible to assess impact using experimental methodology. This effort to quantify the benefits of regulatory improvements has been welcomed by both government counterparts and IFC PEP’s donor partners. Using this methodology, IFC PEP has estimated an aggregate cost savings of US$84 million for businesses in its focus countries. The developed methodology is relevant throughout the project life-cycle and can be a useful tool for engaging and motivating key stakeholders to reform.
Desired impact of regulatory simplification projects The goal of regulatory simplification is to reduce to the greatest extent possible the administrative burden of compliance with government regulations, while maintaining a necessary level of regulation to protect the public. Regulatory simplification thus benefits businesses by reducing the total cost of the administrative burden arising from government regulations and by freeing up these resources for other pursuits.
Our approach calculates the reduction of regulatory burden...
… but it does not assess social benefits of regulation, i.e. assumes they are not affected
Regulatory costs
Regulatory benefits
Goals of regulatory simplification:
Regulation
Efficiency of procedures
Improve upon existing regulation to allow private sector to more efficiently comply with the requirements
Introduce time limits for resgistration
Reduction of overall burden
Reduce the scope of government intervention
Reduce licensing overlapping with permits
____________ 1
Examples from three PEP projects can be found in Annex 1
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x Number of times the given procedure (e.g., liIFC PEP’s BEE program includes a number of multicensing) is undertaken by a representative firm year national-level regulatory simplification projects. on a yearly basis (data publicly available) They are designed as targeted interventions addressing x Individual cost of each procedure, including ofkey hindrances to private sector development2 and genficial payments (data available through official erally pursue the following objectives: 1) diagnostics and sources) and unofficial payments (data collected monitoring via regular SME surveys; 2) streamlining of through SME surveys) two or three selected administrative procedures (nationx Cost of employees directly dedicated to adminisal-level policy and legislative changes and implementatrative procedures and the daily average employee tion support for pilot agencies); 3) advocacy work with salary (data collected through SME surveys). governments and the private sector to facilitate reforms and outreach to increase legal awareness by SMEs of selected administrative procedures. 2. Indirect (opportunity) costs: Impact on revenues or costs, due to alternative uses of time formerly dedicated to administrative procedures We have developed our approach to calculating the eco- (e.g., delayed entry and temporary closure of business). nomic effect of regulatory improvements for businesses We calculate the delay of entry (in the case of procedures by adapting methodologies used in a number of Or- such as business registration, licensing, permits, and othganisation for Economic Cooperation and Development er entry controls using the following: (OECD) countries. More specifically, our approach builds on methodologies developed by the Ministry of The direct impact on economic cost (e.g., administraFinance of the Netherlands, the European Commission, tive costs, including official and unofficial payments and the U.S. Small Business Administration, and the U.S. labor costs) of an enterprise resulting from the reform of Office of Management and Budget. The key challenge a regulatory procedure, calculated at the firm level, the was to have an approach that is reliable, simple, and ap- sector level, or for the SME sector as a whole. Direct plicable in an environment best characterized by scarce costs are calculated by multiplying the following: data. We have leveraged the data commonly available x Average annual net profit for start-up companies within projects as part of the monitoring and evaluation using averages for different sectors (data publicly (M&E) framework and have ensured basic standardizaavailable) tion of small and medium enterprise (SME) surveys in x Average time spent in each administrative proceorder to consistently capture the data needed to produce dure (data collected through SME surveys) and verify our estimates of economic impact. x Average number of working days per years in the economy/sector (data publicly available). The methodology employed distinguishes between two types of costs on businesses (see Annex 2 for a more deCosts related to the temporary closure of a firm’s activity tailed outline of the methodology). are calculated using the following: 1. Direct costs: x Average annual losses for an active company whose activity is stopped but which retains its The direct impact on economic cost (e.g., administraproduction factors tive costs, including official and unofficial payments and x Average time a company’s activity is stopped due labor costs) of an enterprise resulting from the reform of to the given procedures (data collected through a regulatory procedure, calculated at the firm level, the SME surveys). sector level, or for the SME sector as a whole. Direct costs are calculated by multiplying the following: In IFC PEP’s region, there are virtually no truly informal firms operating outside the legal registration and ____________ 2 As determined via representative business surveys and other sources; licensing framework; it is therefore legitimate to include for details, see SmartLessons: Key Benefits of Enterprise Surveys for Im- these costs in our calculations (informality in the region proving the Business Enabling Environment by Sanda Liepina, Dina appears mostly as significant underreporting). This might Nicholas, and Edward Novoseletsky. Contact smartlessons@ifc.org.
Key aspects of methodology
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not be relevant, however, in other regions, such as Latin “Key Benefits of Enterprise Surveys for Improving the America. Business Enabling Environment” and won’t be repeated here. It is, however, important to note that in this We have chosen to use net profits (i.e., profit after taxes) region it is impossible to collect necessary data at the expressed in U.S. dollars as the indicator of cost savings firm level from any publicly available information. As for businesses. Understanding the impact of policy a result, conducting our own surveys is the sole means changes in terms of profits has two advantages: (1) of collecting the data needed to undertake this type of businesses operate to generate profit, and this measure impact assessment. best reflects the benefit that companies receive as a result of better regulation; (2) expressing the economic benefit Lesson 2: Scarcity and inaccuracy of available data impose of reforms in profits allows aggregation of overall impact limits on what can be calculated. of cost reduction measures. The alternative option we The estimates provided in Annex 1 represent the lower considered was to use sales as an indicator. Businesses range of the true impact of these regulatory simplifiare more likely to report precise revenue data in business cation projects and are thus conservative in nature. In surveys, though similar concerns of underreporting most cases we have anecdotal and case study evidence apply. At the same time, not all regulatory simplification of other meaningful effects of reforms, but these cannot measures have an impact on sales, whereas reduction in be quantified due to limited data from businesses and costs is always a relevant indicator. As a result, the sales the government. Further, it is important to keep the indicator would not accurately represent the resources costs of obtaining such data reasonable. Official data are freed up for other business pursuits, nor could it be obtained by the project teams in the course of the daily aggregated to arrive at a single measure of cost savings work, surveys are conducted as part of the policy work, to a business. and adding a few targeted questions to assess impacts is a marginal cost. Ensuring standardization and consistency in calculations over the span of a few years before and after reforms is the Another limitation is that the available data and timecritical challenge. This requires certain operational and frame of donor-funded projects allow us to evaluate project design features as detailed in the chart below. only short-term (“static”) economic effects accruing to businesses. We measure the impact Prerequisites of regulatory changes on existing In order to measure possible impacts of reforms it is necessary to create an initial baseline and monitor the companies, i.e., on firms that have Baseline survey situation through data collection (i.e. surveys) questions and subsequent designed to gather information on the aspects of business measurement already taken the decision to enoperations that will be affected by the proposed reforms. ter into the market. These are thus Implementation of The effects from reforms and adopted legislation can only be short-term estimates (for one year reforms captured if those are effectively implemented. post reform) and are very conservaThe calculations require detailed knowledge of the real Hands-on government/businesses interaction in the field and the tive in that they do not account for approach mechanics of the procedures in question subsequent effects of these regulaGiven the steps required to arrive at impact calculations Thorough (baseline via business surveys à reform and implementation tory changes over future years. In planning and long à verification of impact of reform), this is feasible for project life-cycle medium term BEE programs spanning 2-3 years in a given addition, these estimates do not country. consider the changes in market structure that might arise in the Lessons learned and the way forward medium to long term thanks to the reduced barriers to entry. Lesson 1: Surveys have proven key to obtaining firm-level data on actual changes after the reform. We would ideally also want to capture the longer term As shown in the methodology section above, surveys are (“dynamic”) economic effects accruing to businesses. instrumental tools for gathering data to arrive at impact Medium and long-term effects are the impacts on the calculations and to test the estimated impacts later on. By market structure caused by the entry into the market of carefully approaching hypotheses and design issues, we new companies as a result of policy reforms. These efare able to discern the true attributable impact of reform. fects are dynamic and by their nature span over the lonSurvey-related lessons are detailed in the SmartLesson on ger term and require a stronger set of assumptions and SmartLessons
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data to be assessed, e.g., the number of new companies incorporate forward-looking thinking into project entering the market, the effects of entry on the market design. Ex-ante analyses on the various BEE reforms structure and prices, etc. could allow project staff to incorporate information on the cost-effectiveness of certain reforms into the In addition, as IFC develops its measurement techniques, process of deciding which reforms should be pursued for it would be important to also estimate the economic ef- simplification. fects accruing to government in the form of net revenues. The poor quality and lack of availability of data on govAbout the Authors ernment operations in the countries of our region have so far prevented us from carrying out these calculations. Sanda Liepina is Senior Operations Manager at IFC Nevertheless, for those willing to try, we have developed PEP in the Russian Federation and oversees the rea conceptual model – see Annex 3. gional BEE portfolio. Lesson 3: Use reasonable and verifiable assumptions and distinguish between direct and indirect costs. In most countries where we work, such measures of impact of reform are a novelty. IFC has often been the first to introduce this approach, and this means we also have the burden of explaining and educating the audiences we work with. Being forthcoming on the data we use and the assumptions we apply is a must – thus allowing for true debate, skepticism, and verification of the impact assessment. Separation of direct and indirect costs has proved very useful and is ensuring transparency of the calculations presented. Lesson 4: Aggregate costs savings are best expressed as ranges accounting for uncertainty. Our calculations are typically built on historical data to estimate the impact in future. By their very nature, they are best presented as a range of impact recognizing the uncertainty involved. In our policy advocacy work, however, we have found that ranges and implied uncertainty are not easily understood by the recipient audiences, who are used to precise figures. Our solution has been to use the lowest value in the range and thus be very conservative in the estimates publicized. In principle, the use of ranges would be preferred. Lesson 5: Effectively applying this approach requires buyin and understanding from project staff. Preparation of the economic impact estimates is not a one-time effort. Use of this methodology requires that data collection be an integral part of a project’s daily activities and that data requirements are accounted for regularly. This can only be achieved if the project staff is well versed in the rationale and basic concept, which in turn means that to be feasible, the methodology needs to be kept simple. Further, in undertaking these types of calculations in the future, PEP hopes to be able to 24
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Andrea Dall’Olio is Country Sector Coordinator at IFC PEP in Kazakhstan and manages IFC PEP’s Tajikistan BEE Project. Sanwaree Sethi is Monitoring and Evaluation Specialist at IFC PEP in the Russian Federation.
Published in May 2007.
reforms over a longer period of time with clear pre- and post-reform benchmarks.
Annex 1. Examples of calculations at work: Establishing a baseline —> Ensuring reforms are enacted —> Estimating and verifying aggregate cost savings for businesses BELARUS: STREAMLINING BUSINESS REGISTRATION – $3.4 M in AGGREGATE COST SAVINGS
Context: Presidential Decrees in 2006 reduced: 1. Time needed for registration 2. Number of documents subject to notarization fees 3. Notary fees and payments
UZBEKISTAN BEE PROJECT ECONOMIC IMPACT: $ 39 M in AGGREGATE COST SAVINGS Context: 8 normative acts improving business environment have been adopted and implemented in the country with the assistance of the Project:
1.Suspension of enterprise’s activity by court decision only;
in millions, USD
2.Improved and simplified reporting system;
3.4
Cost savings: reduced notary fees & number of documents to be notarized
3.Introduction of termless licenses and cancellation of certain permits; 4.Improvement of the registration procedure for businesses
0.5
Additional profits due to reduction of registration time
in millions, USD 26
39
Highlights:
Estimated Economic Impact of the Reforms
2.9
Economic Impact of Reforms on SME sector
13
Direct costs
Indirect costs
Total effect
Current impact – ca. $39 M
SECO Funding (2001-2007) – $1,666,750
Total impact
In 2005 and 2006 the Belarus BEE project focused its efforts on simplifying costly and burdensome business registration procedures. As a result of the project’s policy work, the government enacted a series of key changes that, using our methodology, are estimated to result in direct cost savings to businesses of roughly $500,000. In addition, the shorter registration period is expected to generate about $2.9 million in profits for Belarusian SMEs. (Detailed calculations are available upon request.). The SME survey conducted in early 2006 included specific questions on business experiences with the registration procedures. This allowed the project to capture a true pre-reform situation (baseline). The project plans to conduct another comprehensive SME survey in 2008 to capture the actual post-reform state of affairs. In the interim, in order to engage the government in a policy dialogue and estimate the impact of the reform, the project used expert assessments and official data to arrive at a conservative estimate of the aggregate cost savings to businesses. These will be verified once the data from the 2008 SME survey are available. Another example is the work undertaken by IFC PEP in Uzbekistan to improve the business environment with a focus on streamlining inspections, but also tax reporting, permit and license issuance, as well as company registration procedures. This program has been ongoing since 2001. Regular surveys allow tracking the impact of
Inspections were the primary focus of the project’s regulatory simplification work between 2002 and 2004. The SME survey conducted in 2001 established a baseline against which the project could track changes in actual business experiences with the government inspections. Pervasive inspections were clearly one of the highest burdens for the private sector in 2001 and represented a vehicle for extensive government intervention with no apparent benefit to the public. Substantial changes were progressively enacted with the assistance of the project, resulting in streamlined inspection procedures and limited abuses as confirmed by subsequent representative business surveys. The effects of all the reforms that could be quantified were determined. The aggregate economic effect of eight Presidential decrees developed with in-depth assistance of IFC PEP experts during the lifespan of the project constitutes roughly US$39 million for the SME sector. This consists of US$13.4 million in direct cost savings as a result of improved and streamlined inspection, permits, licensing, registration and reporting procedures. In addition these improved procedures are expected to generate approximately US$25.9 million in profits for SMEs in one year. (Detailed calculations are available upon request.) IFC is consistently applying this approach to other reforms enacted as a result of BEE projects. In Ukraine, implementation of the 2005 permits reform is still incomplete, and the inspections reform was just adopted in 2007. It was already possible, however, to calculate SmartLessons
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the burden of both procedures in terms of work time for each of those. Direct cost calculation makes use lost as a baseline for impact assessment. We have also of basic indicators and in particular leverages IFC’s been able to make the first estimate of the savings experience with SME surveys in the regions. Direct costs can be differentiated between: TAJIKISTAN: EVALUATION OF INSPECTIONS’ BURDEN
Administrative costs (D1): Administrative costs can be calculated for each procedure by multiplying: ‡ New Law “On USD Inspection“ Individual o The number of times a procedure (e.g., adopted in 2 92 entrepreneurs 10 ~7.2% 2006; 80 of licensing) is undertaken by a representative ‡ Project annual profit calculated firm on a yearly basis (n) baseline to serve as a o The individual cost of each procedure. comparison for 70 463 evaluation of the Small and ~7.5% Individual costs related to administrative medium law‘s effect, 55 of 330 companies which will be annual procedures can be distinguished between conducted profit during the next official and unofficial payments. These survey phase estimates assume that the employee time can be disposed of or dedicated to other administrative activities (versus revenueresulting from the first phase of implementation of the enhancing ones): permits reform (roughly US$2 million have been saved ƒ Official payments: Data available from in 2006 compared to 2004, and full implementation by official sources (PO) the new regime of fire safety permits, allowing low-risk ƒ Unofficial payments: Data available businesses to use self-certification, will result in savings from surveys or estimated as a percentage of over $31 million for SMEs). The most recent reform on top of the official ones (PU) enacted in Tajikistan, the adoption of a far-reaching Law D1 n PO PU
on Inspections in 2006, does not yet lend itself to full pre-post reform assessment, as its implementation is still in progress. We have calculated the overall burden Labor costs (D2): Costs of employees directly dedicated of inspections, expressed as a percentage of the annual (in full-time equivalent terms) to administrative profits of businesses. This represents the baseline against procedures. These estimates assume that the employee time which to measure the effect of the reform in a few years’ can be disposed of or dedicated to other administrative time. activities (versus revenue-enhancing ones). Annex 2. Detailed outline of the methodology The main driver of D2 calculation is represented by: Context
Economic Impact of Inspections on a company
Administrative costs
Labor costs
Lost profit
Total impact
The methodology employed distinguishes between two types of costs on businesses which are as follows: 1. Direct costs: direct impact on economic cost (labor or administrative costs) of an enterprise resulting from the reform of regulatory procedures; 2. Indirect (opportunity) costs: Impact on revenues or costs, due the different use of time formerly dedicated to administrative procedures.
o the amount of full-time employee time (in working days) dedicated to a specific administrative procedure (d) o the daily average employee salary (w). D2 w d
Average employee salary (w) also includes all social benefit costs. Total direct costs will be calculated as the impact on net profits of administrative and labor costs (D1 + D2). A variation such as decrease in administrative and labor costs increases gross profits but in turn will imply higher profit tax, thus reducing the total impact. For 1. Direct costs. Direct costs can be estimated at firm this reason, in order to calculate direct cost effects, an level, at specific economic sector level, or for the SME estimated average profit tax rate (t) will be needed. sector as a whole, depending on the set of data available 26
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D
D1 D 2 1 t
This estimation takes into account, among other factors, the shares of revenues officially reported. Moreover, the average tax rate can be estimated for the overall economy or be differentiated according to the type of business (i.e., individual entrepreneurs versus legal entities) or economic sector.
o Average time, in working days, a company is stopped due to the procedure(s) o Average profit tax rate (t) I2
L 1 t
s dt
Annex 3. Approach to estimates of economic effects accruing to the government in the form of net revenues.
2. Indirect (opportunity) costs. Indirect costs require a more detailed approach to calculations and use of a higher The revenues/costs for the government directly impacted number of assumptions. Overall, we distinguish between by the regulatory simplification reform are: two main categories of opportunity costs determined by x Administrative fees: Administrative procedure administrative procedures: directly impacting the collected fees x Indirect taxation revenues: These are valueCost related to the delay of entry of a new firm into added tax (VAT) effects from higher sales arising the market (calculated as I1 below) i.e., by deferring the from: launch of profit-generating activities. Examples of these o Lower fees and lower administrative costs; procedures are business registration, licensing, permits, businesses immediately generate more and other entry controls. The cost of this delay can profits; then be measured as the proportion of profits lost due o Lower opportunity costs, i.e., higher profits to delayed entry into the market. In order to calculate and more tax revenues (as an effect of cost opportunity costs the key elements are: reduction) and in turn generate more tax o Average annual net profit for start-up revenues; companies, for each industry or average per The effect of indirect tax is highly country specific, sectors ( 3 s ) given the number of indirect taxes applied (i.e. o Average time spent in each administrative VAT, road users’ tax and similar applied to total procedure (number of working days) (d) revenue of the business, etc.) o Average number of working days per year in x Direct taxation revenues: In particular profit the economy/sector (dt) tax, which can be impacted as a result of: o Lower fees and lower administrative costs; d I1 3 s businesses immediately generate more profits dt (as a result of cost reduction) and in turn Procedures which result in temporary closure of a firm’s generate more tax revenues; activity (calculated as I2 below) i.e., that imply loss of o Lower opportunity costs, i.e., higher profits productive activities for existing companies. Typical and more tax revenues examples of procedures stopping economic activity x Public employee costs: Impact arising from are inspections, repeated licenses, repeated permits, as the variation of government employees’ well as the suspension of activity due to the absence time dedicated to the procedures, and more of licenses/permits. These costs are typically faced by efficiency. existing companies; in order to estimate them, the key elements are: o Average annual losses for an active company whose activity is stopped but which remains active, i.e. which retains all its production factors ( L ) SmartLessons 27
SETBACK OR BLESSING IN DISGUISE? IMPLEMENTING MANAGEMENT INFORMATION SYSTEMS IN PARTNER BANKS AND LEASING COMPANIES PATRICK LUTERNAUER AND UMEDJAN UMAROV This paper intends to share the experience gained by the IFC Leasing Advisory Project in Central Asia and Azerbaijan (ACALF) in working with a number of financial institutions that provide leasing services. In particular, ACALF has been involved in the delivery of new management information systems (MISs) and updating existing ones at 13 institutions in 4 countries. This paper will share some of the challenges that the team faced, and the lessons learned: the need to segment the partners involved in the project; the benefits of hiring an external consultant to help implement these systems; and introducing financial incentives to spur changes. For more information about ACALF, visit www.ifc.org/acalf. aptation, installation, and after-sale service of a uniform software system for all PFIs, with some modifications to adjust to various client needs.
Background
Apart from improving the leasing regulatory framework, ACALF works with 13 leasing companies and banks— Participating Financial Institutions (PFIs)—from Az- The rationale behind selection of the uniform software erbaijan, Uzbekistan, Tajikistan, and the Kyrgyz Repub- through IFC was: lic to strengthen their institutional capacity. The PFIs were selected from IFC’s current portfolio or represented x If IFC buys the software, its name would help high-potential targets for IFC’s Global Financial Marto attract an offer of the best banking or leasing kets Department. software available; x IFC would ensure that the software selection When ACALF started in September 2005, none of the would adhere to thorough and transparent selecselected PFIs had a viable MIS that would meet internation and procurement procedures and policies; tional standards and be able to track transactions, genx It would be easier and more cost-effective for erate real-time management reports, establish efficient IFC to work with one software supplier instead delivery systems, and ensure risk management functions. of dealing with many; Thus, upgrading the MIS at each PFI was one of the x A software developer or vendor would feel more project’s major objectives. comfortable dealing with IFC rather than with 13 individual companies; 13 institutions, 4 countries, 1 MIS: What could go x The software developer or vendor would see the wrong? project as a market-entry opportunity facilitated by IFC, and thus be more willing to accept the price offer; x PFIs often lack the skills and knowledge to select appropriate MIS and information technology (IT) vendors. Although ACALF would source the software, the MIS vendor would work directly with all PFIs on the implementation and maintenance of the software. ACALF would financially support the PFIs’ purchase of the software.
It was obvious from the outset that the MIS component was a complex and costly one. Initially, ACALF assumed that it would best serve everyone’s interest if the project ACALF found a MIS vendor that met the set standards took the lead in searching, selection, development, ad- and the preferences of the PFIs. In August 2006, the co28
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ntract with the supplier was signed, and ACALF expect- Lesson 2: Mitigate risks for IFC and the client early in ed to begin with the installation work. the process; get an independent adviser. Yet this scenario did not work out. The selected MIS vendor decided to walk away from the contract, because he realized the difficulties with integrating multiple countries and platforms into one system. The MIS vendor also felt uneasy operating in frontier markets of Central Asia, although this was clear to him from the beginning. ACALF was not able to identify a suitable replacement in time. The PFIs began to question ACALF’s commitment, and the project’s donor inquired about the delay in project implementation. This setback turned out to be a real blessing in disguise. It forced ACALF to review its original approach and to offer an alternative delivery mode. In hindsight, ACALF went into this venture too hastily and a bit naively.
Lesson 1: Segment your clients carefully; one size does not fit all, especially for MIS/IT.
ACALF had a team of six people—one country officer in each country plus, a project manager and an assistant based in Uzbekistan. ACALF did not possess sound knowledge on MIS/IT, hence the decision was made to hire an MIS consultant who is not only familiar with the main systems used in the regions but also speaks Russian—an important factor in communicating with nonmanagement-level staff at the respective PFIs. Benefits of hiring an external consultant x
Provided expert opinion to ACALF for making financial contributions to MIS purchases
x
Helped PFIs define the gaps, develop IT strategies, work out technical requirements, compile bidding documents, and select a proper MIS product and vendor
x
Worked with PFIs on proper procurement practices
The project had to reassess its approach, taking into account that the target group of PFIs was not homogeThe appointment of a consultant to work with each PFI nous: on its specific situation proved to be very successful for all x The group had universal banks as well as pure parties involved. For ACALF, the consultant guaranteed leasing companies; all PFIs differed in size, busi- that the systems purchased with its contributions have ness models, and client segment, needing soft- an appropriate cost-benefit ratio and provide the desired impact on operations. For the PFIs, the consultant helped ware of different configurations; x The software had to address different tax laws and to choose the right strategy (for example, upgrade or new language requirements (English, Russian, and system) and also to save money. For instance, a Terms the local language), which required considerable of Reference (TOR) document for MIS procurement is highly technical and complex. MIS vendors who develop adaptation of a standard software package; x The installation, testing, and initial running of a such TORs for the client (as it is usually done in the completely new software was a lengthy process region due to lack of skills at client level) charge for this with many potential set-backs to operations and job 10–15 percent of the total amount, without guarantee that the end result best meets the client’s needs. The financials. ACALF-hired consultant mitigated these risks and costs. After the reassessment, the PFIs came out divided into In addition, ACALF, with the consultant’s help, advised two groups: 1) partners that wanted to acquire and use PFIs on best procurement practices—an important tool a completely new MIS, and 2) PFIs willing to upgrade in fighting corruption. or reconfigure the MISs they had in use. All of them required an individual approach in addressing their Investments in MIS/IT always involve participation and MIS-related issues. It also became evident that the PFIs buy-in from several stakeholders within a company— from the first group required more guidance in regard to board, management, IT department—and are prone to the selection of MIS/IT than did those from the second clashes of interests. Bringing in an external consultant group.
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can create additional friction and problems. ACALF had to guarantee that the consultant was perceived as objective and unbiased by all groups concerned. We also had to ensure that the consultant himself is free of any potential conflicts of interest (for example, not linked to a MIS/IT provider). For these reasons, ACALF made sure that: x The PFIs were involved in the selection of the consultant; x The consultant did not participate in the purchase of any MIS/IT (as a member of a procurement committee, for example), nor did he have any purchasing decision power; and x Procurement of any MIS/IT follows the World Bank/IFC model Lesson 3: Let the client take ownership of the process. ACALF decided to let the PFIs take the lead in procuring a MIS/IT system. This approach has several major benefits: x Clients are more motivated and committed when they are responsible for the selection and procurement of a MIS/IT system; x Clients strengthen their in-house expertise in making substantial investments into their own assets by participating in the entire processes of selection, negotiation, adaptation, and testing; and x Clients will develop a direct relationship with the MIS/IT vendor, ensuring after-sale service and accountability—an important factor in ensuring sustainability beyond the close of ACALF in mid-2008—and allowing for easier future modifications. The role of ACALF was that of a neutral broker, making sure the consultant delivers quality work and helping to deal with potential conflict situations. ACALF also ensured that the selected MIS/IT met the stated objectives of the project by helping to improve the leasing business of the PFIs. Moving the responsibility for selection and procurement of the MIS/IT to the client also allowed ACALF (and eventually IFC) to mitigate potential reputation risks.
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Lesson 4: Link financial contributions to specific performance targets; it increases commitment and ownership of the client. ACALF used the new approach as an opportunity to introduce a new scheme for its financial contribution to the MIS/IT upgrade. The IFC pricing policy that was introduced in January 2007 served as a welcome guide. The project also wanted to provide sufficient incentives to the PFIs for implementing a new MIS/IT and to ensure that impact is measured. This caused many internal discussions within the ACALF team, given that the original advisory services agreements signed in 2005/6 did not contain such provisions. The original approach implied that ACALF would provide free advisory services and subsidize up to 85 percent of the cost of a new MIS. No specific targets and objectives were imposed on the PFIs. ACALF convinced the clients to agree on minimum performance targets and to link ACALF’s financial contribution to their MIS-upgrade expenditures to those targets. Thus, depending on the PFI’s performance, ACALF covered the consultancy costs and partially funded the MIS/IT update or purchase. Now ACALF’s contribution is 10–50 percent of the MIS update or purchase costs. The new scheme meant higher costs for the PFIs. Nevertheless, all but one of the PFIs accepted the changes that were agreed on in a separate contract. We believe that the new approach to the procurement of the MIS/ IT—with the clients taking a more active role, plus the individual consultancy—contributed to the acceptance of the new financial scheme. PFIs also valued the quality of the advisory services provided by ACALF in the areas of leasing policies, accounting, credit analysis, and asset and liability management. Eventually, the excellent client relationship and trust built up by the ACALF team helped to win the PFIs over. One example of the financial arrangement: one bank in Tajikistan opted for MIS upgrade that cost $91,200. ACALF contributed $44,200 in total. Under the old regime, the bank would have paid only 15 percent of the costs.
Outcome and Impact About the Authors
Since May 2007, ACALF and the consultant worked with six PFIs on their MIS/IT situations. Work with four of those PFIs is completed, and of those four, three already implemented our recommendations. ACALF paid its contribution to one PFI (a bank in Tajikistan, whose upgrade cost $91,200) with others to follow. The expected positive economic impact to this bank, due to its MIS upgrade, is $460,000 a year.
Umedjan Umarov is an Associate Investment Officer in Uzbekistan. Patrick Luternauer is a Senior Operations Man-
ager for PEP’s advisory services projects in the Russian Federation.
Published in December 2007.
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HOW TO ASSESS IMPLEMENTATION OF BUSINESS REGULATIONS AT A LOW COST WITHIN A SHORT TIME FRAME ANVAR MELIBOEV AND OKSANA PETROVA Enterprise surveys have many benefits. Yet these surveys are often time-consuming and require substantial financial resources.1 This SmartLesson discusses a variety of effective and inexpensive research methods that can assist IFC and the donor community in obtaining an objective, comprehensive, and credible assessment of problems in the business environment. The Uzbekistan Business Enabling Environment (BEE) Project tested these methods from April to June 2007 in the capital city of Tashkent.2 Business registration was supposed to have improved significantly (reducing cost and waiting time for entrepreneurs) with implementation of a new presidential decree on registration, effective as of September 2006. Using the methods described below to assess the impact of implementation of this decree, the project confirmed savings of $1.25 million out of an estimated $1.75 million in potential cost savings to the private sector from decree implementation.
1. Telephone Survey
sufficient quantitative data for analysis.3
A telephone survey is inexpensive, takes only a short time, and can be conducted by project staff without the need for external consultants.
However, telephone surveys are less effective with long questionnaires on multiple topics.
Within one month, project experts interviewed 500 entrepreneurs who had undergone the registration procedure between September 2006 and April 2007, using information about newly registered enterprises provided by the State Committee of Uzbekistan. Despite using data from official sources, we could get in touch with only about 20 percent of the listed companies because of wrong numbers and idle or busy lines. Moreover, we needed to call respondents back several times due to technical problems. Also, some of the respondents simply refused Interviewing entrepreneurs to answer questions. In spite of the low response rate, the number of surveyed enterprises covered enough of the total population of registered companies to be representative, and we had ____________ 1
Enterprise surveys are one of the most popular of the numerous instruments to assess a country’s business climate. 2 Tashkent was chosen for polling because it is a region with indicators close to the country means.
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Direct telephone surveys are good for conducting targeted research when: 1) Respondents are available via telephone, and 2) Information on a relatively limited topic must be obtained within a short period of time.
2. Focus Groups with Entrepreneurs The results of the telephone survey helped us answer the question “how.” But to answer the question “why,” we organized focus group discussions with entrepreneurs. An appropriate selection of focus group participants (seven open-minded entrepreneurs—representing five districts and various business types—who freely shared their experience and exchanged ideas) gave us valuable feedback and created a marketplace of ideas about the registration procedure.
____________ 3
The response rate of the telephone survey was low (about 20 percent) compared to the response rates of scale surveys (more than 80 percent). However, the coverage of total population by telephone survey is much higher (about 20 percent) than for the scale surveys (about 1 percent). Therefore, this rate is sufficient to be representative.
This method enabled us to bring out practical realities associated with business registration, compile and clarify quantitative data obtained from the telephone survey, and clarify details on registration that were impossible to get from entrepreneurs by telephone. While telephone surveys answer the questions of “how” and “how many,” focus groups supplement this information with the “why.” Qualitative analysis of survey data is strengthened through focus group discussions with entrepreneurs who have gone through the administrative procedure in question. They can give a subjective assessment of each step of the process.
3. Meeting with Legal Consultants The weak point of discussions with entrepreneurs is that they all were registered after adoption of the new registration system and therefore canDiscussion with legal consultants not assess the changes this new system brings. To evaluate the difference in registration systems before and after adoption of new registration procedures, we met with legal consultants specifically engaged in providing consultancy to entrepreneurs and registering new business entities. The consultant group, consisting of two highly experienced professionals, evaluated the old and new registration systems and indicated that the situation had improved significantly.
bodies. Although these interviews were conducted informally to keep the registering officials from feeling pressured, we still felt that essential information was being concealed. They kept indicating that the existing procedure strictly complies with set requirements. Nevertheless, appropriately structured and skillfully asked questions revealed some contentious issues.4 For example, we learned that registering inspectors continue to examine submitted documents beyond the requirements stated in the legislation, which, in line with best international practice, limits the role of officials from a qualitative assessment of data submitted to a strictly quantitative one. Private sector input should be supplemented with the views of mid-level state officials. Interviewing officials who are involved in the administrative procedures adds value to the quality of collected data, since numerous issues may surface through the interviews.
5. Visiting Registering Bodies and Obtaining Certificates in a Company Name
The information from meetings with entrepreneurs, legal consultants, and representatives of registering bodies appeared to be contradictory. Because it is “better once to see than many times to hear,” we decided to experiment and visit the appropriate state bodies. Some of our Legal consultants—independent third parties who are well experts, pretending to be entrepreneurs, visited registerversed in the topic—are able to provide a comparative evaluaing offices for consultations and applied for a certificate tion of the procedures under review, before and after adoption to reserve a company name. We selected five different of new registration regulations. Their opinions add value to registration institutions, widely divergent in their repfurther data collection. utations as described by entrepreneurs in focus group discussions. Overall results showed that some of them provided clearly stated, accurate information on registra4. In–Depth Interviews with Representatives tion, while others provided no information at all.
of Registering Authorities
The experiment allowed us to observe the difficulties The focus group discussions with entrepreneurs and the faced by entrepreneurs such as delays in issuing the meetings with legal consultants provided the entrepre- necessary document, mistakes made, and other matneurs’ perspective on how registering bodies carry out ters that many entrepreneurs had complained about. the registration procedure. To get the other party’s per- ____________ 4 Structured questions are indirect and open-ended. For example, spective on the same procedure, we interviewed two “In your opinion, what kind of problems do entrepreneurs face representatives of inspecting departments of registering while undergoing the registration procedure?” SmartLessons
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To understand the true picture regarding administrative procedures, project staff should put themselves in the shoes of the entrepreneurs. The direct experiment with reserving a company name prior to registering the business helped the project to clarify contradictions in data gathered, assess the “client orientation” of registration officials, and make improvements in the project design.
Pros and Cons of Data-Gathering Methods Employed Method
When to Apply
Advantages
Limitations
What to Remember
Telephone5 survey
1. You have time limitations. 2. You have limited financial r esources. 3. Respondents are available via telephone.
1. High percentage of coverage of total population* 2. Not expensive 3. Less time-consuming
1. Low response rate 2. Limited number of questions 3. Simplicity of questions 4. Low degree of frankness of answers 5. Lack of trust by respondents 6. Technical problems
1. Respondents are more likely to refuse to take part in telephone surveys than in other surveys. 2. Be patient with long answers not directly related to the survey topic. 3. Be pleasant and forthcoming for respondents while surveying them. 4. Limit the number of questions and simplify their content: 20 simple ones will work well by phone.
Focus group
1. You need qualitative information from respondents who have gone through the procedure.
1. Helps to obtain information from the specific group 2. Possible to get indepth details on specific topics
1. Biased opinion that can be explained by personal negative experience, attitude, or perception
1. Make sure participants of discussion are openminded. 2. Make sure participants have undergone or faced issues related to the topic under discussion. 3. Make sure participants represent various types of business.
Consultants’ evaluation
1. You need to obtain a professional viewpoint.
1. Consultants’ evaluation is considered to be detached and professional.
1. Consultants’ views may be too professional, since they do not face issues confronted by average respondents.
1. Make sure consultants possess wide knowledge, both theoretical and practical. 2. Make sure consultants understand the overall goal of the research.
In-depth interviews with officials
1. You need to obtain information on sensitive issues.
1. Presents opinions of practitioners; 2. Good comparison for other opinions; 3. Can open up new corridors of thinking, expose additional problems.
1. Officials may fully disclose the existing situation, so employ critical thinking and ask specific questions. 2. Time-consuming; it could take a while to have them speak up.
1. Make sure you have well-established relationships with respondents. 2. Be sure respondents are aware of the strict confidentiality of their comments. 3. Ensure that interviews take place in neutral territory.
Visits to organizations or institutions, and experiments
1. The information is contradictory and should be refined.
1.Encourages you to pilot new experiments. 2. Puts you in a different role and situation. 3. Creates an opportunity to rethink your views on existing problems.
1. Could fail if your behavior, manners, etc. are different from that of typical entrepreneurs, as data will be skewed.
1. Before you begin, observe typical respondents. Conform your appearance, the way you talk, how you ask questions, and so on to that of the average respondent. 2. Do not argue with representatives of an organization or institution, ask specific questions, refer to legislation, or use terminology that will put your “undercover” efforts at risk.
____________ 5
This is the case if the whole population possesses telephones; otherwise, the response rate represents a high percentage of the population of respondents who do have telephones.
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What can you do with all this information? The methods described above allowed the project to gather necessary data and enabled it to assess implementation of business regulation at no additional cost and within a short period of time. This efficiency results in greater flexibility when developing a number of key outputs, including specific recommendations to the government. The data collected allowed the project to: x Analyze the current situation with the business registration procedure x Produce a comprehensive report on the registration procedure x Suggest and discuss improvement measures with the government x Generate public dialogue on the ins and outs of the new registration procedure x Determine the economic impact from implementation of the new registration order. Analyzing the economic impact: Based on the analysis of gathered data, the project estimated that the implemented business regulation allowed entrepreneurs in the city of Tashkent to save $1.25 million. Execution of all provisions of the regulations would allow additional savings of $0.5 million.
The data allowed the project to conduct a balanced analysis of business registration and to estimate the economic impact of implementation of business regulation on the registration procedure.
About the Authors Anvar Meliboev is a Communications Associate and oversees external affairs at the Uzbekistan BEE project. Oksana Petrova is a Research Assistant engaged in SME survey activities at the Uzbekistan BEE project.
Published in November 2007.
Economic Impact $1.25 million cost savings In millions of USD
0.5
If all provisions of regulation are fully executed
1.25
Actual effect
Possible effect
It has been almost eight months since the release of the report. Public response and debates are speeding up in Uzbekistan, and the media are playing up the report findings, proving the effectiveness of the methods applied. After consultations and discussions with private sector representatives and government officials, the state bodies involved in the registration process are considering further measures to improve the existing business registration system highlighted in the report. For example, the State Antimonopoly Committee of Uzbekistan started developing standard constitutional documents proposed by the project and reflected in the report. Project experts now are actively involved in these processes. SmartLessons
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FIXING A BROKEN RECYCLING SUPPLY CHAIN. WORKING WITH ROMA SCRAP COLLECTORS DRAGAN OBRENOVIC This paper describes the Recycling Linkages Advisory Services project that is being implemented in Albania, Bosnia and Herzegovina, Macedonia, and Serbia. The project provides advisory services to individual collectors of scrap, recycling small and medium enterprises (SMEs), and processors in order to increase the amount of materials collected and to improve their overall performance. I will discuss our approaches to working with the Roma population, who represent the vast majority of scrap collectors in Balkan countries. This kind of cooperation does not always happen naturally. The consequence of a lack of cooperation is insufficient supply. Thus, the Recycling Linkages Project was created to address this problem at all levels of the supply chain. Our first order of business was to address a deeprooted problem at the bottom of the supply chain – mistrust between the individual collectors (Roma) and scrap operators.
About Roma Scrap Collectors In Balkan countries, 98 percent of individual scrap collectors are Roma, who perceive scrap collection as a way Recycling. Very often in developing countries and tran- of surviving. It is well known that a majority of Roma sitional economies, this word is used as a synonym for belong to the group consisting of the poorest of the poor. businesses of the future. The question remains, however, The majority of Roma collectors believe that they are how to make this future come true. This is a business constantly being cheated by scrap yard owners who supthat can operate successfully only when all the tiers in posedly lower the weight of paper they collect. the supply chain − the individual collector of used materials, small scrap yards, the regional centers, and final Several times we have seen Roma collectors pouring waprocessors (mills) − do their own job properly and trust ter on paper like it was a flower. Asked why they do so, one another. The large investments that are necessary for they said that the scrap yard operator will surely reduce establishing recycling processor operations can happen the weight by a certain percentage, and thus adding waonly if the mills can rely on a predictable supply of scrap ter to the paper helps them achieve a “fair” deal. Both sides in the transaction have a strong feeling of being materials. cheated. The mutual trust, so important for a proper supply chain, does not exist.
Start to Discover the World of Recycling
First Level
Value
Second Level
Individual
Scrap
collectors
operators
Third Level
Regional scrap
(Roma )
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Processing mills
Plus, the scrap yard owners have a strong belief that Roma will switch to another buyer as soon as it offers just a little better price. As a result, scrap yards are not investing in a long-term relationship with or training of the scrap collectors.
Lessons Learned
Lesson 3: Cultivate Strong Roma Business Leaders
Our biggest challenge was to tackle Roma issues in a way so as not to insult them, not to hurt them, but at the same time to improve their performance and to ensure the collection of sufficient quantities of materials. This is the most complex issue in providing advisory services to this vulnerable group.
Finding individuals among Roma collectors who are capable of overcoming all the wrong perceptions and serving as examples of successful people is essential for this business. These individuals should, together with external technical experts, be involved in training implementation. Only they are capable of gathering other collectors and ensuring the proper level of trust.
Lesson 1: Find a Trusted Intermediary These kinds of leaders could represent a group of Roma Roma are traditionally cautious of outsiders. We learned collectors in negotiating prices, maintaining business rethat the best way to overcome this is to find a Roma or- lationships, and finding the best buyers. Individual colganization that is skilled and experienced in both social lectors who are grouped either in a cooperative or in a and recycling issues and to employ that organization to collectors’ association perform better and achieve a higher income. Leaders of those groups who maintain decent serve as an interface for IFC and its consultants. business relations with buyers are also the only persons who can break the current bias toward Romas. Lesson 2: Customize the Training Program Sometimes the training design that looks like a piece of art will not work with Roma due to its complexity or because it neglects the everyday problems they face. The training should be concise and to the point – do not forget that every day spent in training is a day without income for Roma collectors, and a lot of hungry kids are waiting at home.
I cannot overemphasize this – a strong Roma leader who proves his personal and professional qualities is the person to support both Roma and IFC, should we want the training to be effective. The Recycling Linkages Team has found such individuals among the Roma population and cooperates with them. The only advice for future advisory services providers is to do the same.
Many collectors believe they do not need any training assistance. The training provider has to convince Roma of his/her knowledge about the recycling sector, not from the position of a high-profile consultant who works for a large company, but from the position of a person who sees and understands their everyday problems. It is essential to find a person who has broad experience in recycling issues and at the same time has a nice character and a persuasive approach. Those who express even the smallest negative attitude toward this group should be eliminated immediately; otherwise, Roma people will feel it and the training will not be successful.
Lesson 4: Socialize!
It has been proven many times that advisory services are about dealing with people, not with functions. In transitional economies like Serbia, direct contact between advisory services providers and individual collectors and scrap yard owners is something that creates a base for further cooperation. Even though it is time consuming, spending time in friendly conversation with Roma and attempting to fully understand their problems is crucial for gaining the trust of these people. The project manager should not be discouraged by the mud, dust, or dirty water in Roma settlements. Go to their houses, speak It is also important for the training program to com- with the people, and show them that options for a betmunicate firm boundaries of the assistance early on. We ter life do exist. That is the point where real advisory have seen that Roma people sometimes perceive them- services could start. selves as an entity that should get all kinds of free services from international organizations in terms of free houses, Conclusion trucks, clothes, etc. This belief threatens to spread among the Roma population and to even worsen their current Where we are at the moment: The Recycling Linkages Team conducted training of 865 Roma in the region. situation. SmartLessons
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Two educational movies (Small Collectors and View to a Better Tomorrow), prepared by the YuRoma Center (a Roma nongovernmental organization client) to raise interest in the scrap collection business, increase public awareness for Roma collectors, and address child labor issues, aired on Roma Television Nisava and several local TV stations, and reached more than a million citizens of Serbia, including an estimated 15,000 Roma citizens. The movies were presented to the Vice President of the Serbian Government and his Team for Strategy for Fighting Poverty. Future actions regarding increasing the employment rate and school enrollment rate among Roma are under preparation, as well as training for more Roma collectors.
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About the Author Dragan Obrenovic, Associate Operations Officer,
IFC Recycling Linkages Project, Advisory Services Southern Europe, Belgrade, Serbia.
Published in November 2007.
SELLING A NEW ADVISORY PRODUCT—IFC’S EXPERIENCE WITH PROMOTING INTERNATIONAL STANDARDS AND TECHNICAL REGULATIONS IN WESTERN BALKANS SELMA RASAVAC International standards and technical regulations (ISTR) are becoming more and more a business necessity. Companies, regardless of sector, have to adopt and implement certain sector-specific standards in order to gain access to international tenders and/or fulfill requirements of their foreign partners and/or access and export to foreign markets. In developing regions, the challenge is even more imposing. This paper details the evolution of IFC’s experience in Southeastern Europe from pilot and firm-specific strategies to broader approaches so that the intervention maximizes its impact and the replication is more viable. A key was how to create a flexible instrument for responding to the growing demand for advisory services – delivering solutions with a maximum use of local expertise. x Initiating ISTR operations in the past five years generated high visibility.
Project Information IFC, through the previous Southeast Europe Enterprise Development (SEED) facility,1 implemented some oneoff projects to help implement international standards among companies. The impacts of those interventions were immediately highly visible and measurable. Based on those results, IFC structured a three-year ISTR project which began formal operations in December 2005. While the experience gained from the SEED facility and relevant research showed clearly that companies in the region faced steep challenges in meeting most European Union (EU) and international technical requirements, the successor ISTR program was intended to have a broader reach, and so it addressed issues such as the public good and additionality. The ISTR program focuses on expanding the awareness of companies about ISTR and providing both companies and local business service providers with topical training and consulting services relevant to specific industries.
Although the program would deliver a general and flexible solution in the face of growing demand, ISTR requirements were still novel to clients in all target countries. As such, the final product first needed to build a thorough understanding of the changing environment before turning to the needs of the client. Lesson 1: Selling the Product Designing this new product required extensive research of the market, its demands and supply. Once that is done effectively, the advisory services product is really not hard to sell.
As a preliminary step, IFC did a regional study in mid2004 with the support of a Slovenian expert in issues of harmonization of technical legislation. A variety of common issues were identified, along with priorities based There were three principal rationales for IFC’s involve- on the urgency of needs and IFC’s specific advantages ment: as an advisory services provider. These areas were CE marking2 on industrial product safety, Hazard Analysis x ISTR strengthens management and operational Critical Control Points (HACCP) certification for food processes within companies that might be a po- products, technical regulations, and standards in priority tential IFC investment. sectors such as agriculture and construction. A comprex IFC is viewed as an excellent service broker/fa- hensive country overview in 2005 helped the program cilitator. focus on key sectors in the Western Balkans with the greatest potential for growth, export, employment, and ____________
1
SEED was IFC’s technical assistance facility in the Southeast Europe region from 2000 to 2005. After 2005, the advisory service facility continued under the name Private Enterprise Partnership Southeast Europe (PEP-SE), with a mandate to develop the private sector in countries in Southern Europe until 2010.
____________ 2
A mandatory conformity mark on many products placed on the single market in the European Economic Area. (Wikipedia)
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investment (food processing/retail, construction/build- One of the key sources of funding for our research that ing materials, general manufacturing and information proved to be crucial for the advisory product design was technologies). that companies to a large extent view ISTR as an additional cost but do understand that it is a key non-tariff In addition to this research, Advisory Services Southern barrier to trade. As a result, they often engage in the Europe has carried out a broad scoping exercise within process of implementing ISTR purely driven by the fact the industries in the four countries of Southeast Europe “that they have to have it,” without appropriate under(Albania, Bosnia and Herzegovina, FYR Macedonia, and standing of how to use obtained standards. Serbia and Montenegro). This effort was to determine the specific market segments that contain potential cli- Lesson 2: Multilevel Approach ents for advisory service interventions that pertain to corporate governance and the ISTR program. This ensured Based on the research and prior IFC experience in the a targeted approach, preventing dispersion of Advisory region with regard to standards, IFC has structured the Services Southern Europe’s resources while guaranteeing program on three levels to address the most pressing full alignment with IFC’s country and regional strate- knowledge and resource gaps among various groups of gies (joint sectors allow for the creation of a pipeline companies in the region. of potential IFC investment clients). None of the four countries is an EU member, but all are in the accession 1. Level One: A public awareness campaign targetprocess, which requires each country (at the institutional ing 1,800 companies and relating to the most level) to prepare the private sector for the implementarelevant EU legislation and regulations, sectortion of international standards. specific standards, and export requirements. Each industry/company was analyzed according to the three selection criteria below. Screens for Selecting Industries and Companies Growth x Competitive position Potential x Recent performance x Market assessment Advisory Services x Commitment and Investment x Stakeholder dynamism x Critical mass Absorption Ability x Foster export-oriented industries SEE x Attract investment Developmental x Create employment Impacts x Avoid donor overlap
IFC also organized a number of focus groups and workshops in the four countries to learn more about the market demand. This approach has allowed us to gain a deeper insight into the capacity of companies and local consultants to absorb ISTR-related advisory services, as well as the main characteristics of the legal and economic environment, the supply of consulting services, and the obstacles faced.
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2. Level Two: Topical training courses for exportoriented companies targeting 600 companies in the region, and relating to crucial procedures that need to be put in place in order to satisfy the specific technical requirements in the respective subsectors. 3. Level Three: In-company interventions that will address the individual needs of export-oriented companies by providing advisory services with the implementation of standards/certification. In keeping with its overarching methodology in the region, IFC has engaged international experts for knowledge transfer to networks of local consultants who are the main implementers of the activities across all three levels. This approach creates a sustainable core of local business service providers specialized in technical and product regulation issues, which contributes to a narrowing of the knowledge gap and thereby helps accelerate the growth and development of companies in the region.
Selected sector
IFC All companies in the sector
Level One: Awareness building
International technical experts
Knowledge transfer
All levels: Local technical experts (80)
(1,800)
Selected companies with export potential
Level Two: Trainings and workshops
Level Three: In-company implementation
Individual companies
(600)
(40)
Lesson 3: Mobilization of Third Parties – Does It Conclusion Work, and Why Is It Important? Companies in the region commonly lack a thorough understanding about ISTR requirements, particularly Establishing a tri-partite cooperative arrangement bewhich standards apply to which sectors and/or prodtween IFC, donor partners, and local partners (such as ucts, how to obtain ISTR-related consulting/assistance, Chambers of Commerce, small and medium enterprise what the prerequisites are prior to the implementation (SME) agencies, universities, and ministries) was critiof standards, or what the benefits of standards are. The cal to development impact. It leverages our limited retop-down approach outlined here has provided the sursources, reduces risks, delivers higher visibility, affords us est way for us to reach as far as possible with the available the opportunity to build relationships with other donors resources. while keeping control of the process, and avoids overlapping of program activities. To maximize additionality, the program was mindful that little to none of the donors’ funds were allocated to direct private sector development support or direct incompany intervention. Lesson 4: Resource Mobilization
About the Author Selma Rasavac is an Associate Operations Officer
at IFC PEP-SE in Bosnia-Herzegovina.
Published in December 2007.
Although IFC had gradually built its expertise over a five-year period, resource mobilization has been an important factor in program success. A global institution or organization will have pockets of knowledge and expertise throughout the countries of operation and the larger World Bank Group. It was crucial to tap into that, as well as into external sources. Specifically, this involved conferences on standards in Kiev and Zagreb and mobilizing innovative approaches developed in the World Bank Group.
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IFC Advisory Services in Southern Europe and Central Asia IFC provides advisory services in Southern Europe and Central Asia, working to promote private sector investment; support the creation and growth of the private sector, especially small and medium enterprises; and improve the enabling environment for businesses. This work is taking place in Albania, Azerbaijan, Bosnia and Herzegovina, Bulgaria, Croatia, FYR Macedonia, Moldova, Montenegro, Kazakhstan, Kyrgyz Republic, Romania, Serbia, Tajikistan, and Uzbekistan. t Value Addition to Firms: Corporate Governance, Linkages, Recycling Linkages, International Standards and Technical Regulations. t Business Enabling Environment: Alternative Dispute Resolution, Sub-national Competitiveness, Regulatory Simplification. t Access to Finance: Housing Finance, Leasing, Sustainable Finance, Bank Capacity Building and Microfinance. t Infrastructure Advisory Services: Advisory services for the structuring and implementation of Private Sector Participation (PSP) transactions in all infrastructure sub-sectors. Regional Office Contact, Southern Europe: Philip J. Condon Head, Advisory Services Bulevar Kralja Aleksandra 86 - 90 11000 Belgrade Serbia Tel: +381 (0) 11 3023 750 Fax: +381 (0) 11 3023 740 Regional Office Contact, Central Asia: Tania Lozansky General Manager, PEP ECA 36/1 Bolshaya Molchanovka Str., 3rd Fl. 121069 Moscow Russian Federation Tel: +7 495 411 7555 Fax: +7 495 411 7556
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