Investment Climate by SmartBooks

Investment Climate

Investment Climate Advisory Services | World Bank Group

With funding from FIAS, the multi-donor investment climate advisory services

Contact Information Investment Climate Advisory Services of the World Bank Group 1850 I Street, NW | MSN I9-900 | Washington DC 20433 T: 202.458.7705 | F: 202.522.3262 wbginvestmentclimate.org

For more information about the SmartLessons program, contact smartlessons@ifc.org

Photo Credits Cover photo courtesy of Kemal Cakici, IFC.

MESSAGE FROM THE DIRECTOR The Investment Climate Advisory Services of the World Bank Group helps governments implement reforms to improve their business environments and encourage and retain investment, thus fostering competitive markets, growth and job creation. The challenges posed by the economic and financial crisis have led to an even greater focus on improving investment climates and making economies more competitive. World Bank and IFC colleagues delivering Investment Climate Advisory Services have leveraged their expertise to help clients undertake the reforms needed to make countries more competitive in the global economy.

Pierre Guislain

This publication highlights some of the lessons learned in the course of advising governments on improving their investment climate. The â&#x20AC;&#x153;SmartLessonsâ&#x20AC;? included in this compendium are among winners of four different competitions organized by IFC since 2008 and provide valuable and insightful analysis of cross-cutting issues and challenges. These lessons can help clients and practitioners gain insights on countries or specific projects, draw lessons from experience, improve project design, and, ultimately, improve implementation of investment climate reforms. March 2010

Pierre Guislain Director, Investment Climate World Bank Group

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.

TABLE OF CONTENTS 1. Trading Up: How Tunisia Used ICT To Facilitate Trade by Hamid Alavi

A Conflict’s Impact on Project Goals and Reputation Risk: Lessons from the Kosovo Privatization Program by Karl Bach

Public Service Announcements on TV: An Effective Tool for Reaching Entrepreneurs in Tajikistan by Andrea Dall’Olio and Teresa Ha

Seeking Scale: Business Entry in Indonesia by Dyan Shinto Ekopuri and Hans Shrader

Exporting by Mail: An Innovative Trade Facilitation Tool by Jose Luis Guasch

“Dividing the Wheat from the Chaff”: How to Get at the True Picture of Entrepreneurship behind Misleading Statistics – Lessons from Ukraine’s Example by Yuriy Kuzmyn and Florentin Blanc

Show Me the Money II: From Concept to Practice by Sanda Liepina, Sanwaree Sethi, and Christopher Miller

Kenyan Licensing Reform Sets Scene for Better Collaboration within WBG by Musabi Muteshi, Fred Zake, Lars Grava, Matilde Bordon, and Peter Ladegaard

Creating Opportunities for Women Entrepreneurs in Conflict-Affected Countries by Carmen Niethammer, Mark Blackden, and Henriette von Kaltenborn-Stachau

10. Support Emergence of Home-Grown Policies by Putting Local Partners in the Drafting Seat by Martin Norman

11. Stakeholder Engagement in Post-Conflict Countries: The Liberian Experience by Nana Yaa Ofori-Atta

12. Changing the Minds of Skeptics: How Strategic Communications Can Build Momentum for Tax Reform by Shaela Rahman

13. Art or Science? Measuring the Impact of Business Environment Reforms at the Subnational Level by Margo Thomas, Cesar Cordova-Novion, and Ana Batic

Trading Up: How Tunisia Used ICT To Facilitate Trade Hamid Alavi Although trade liberalization can create jobs and raise incomes, these benefits are easily undermined if excessive costs and delays hinder trade transactions, reducing a country’s export competitiveness. This note shows how Tunisia embraced information and communications technology (ICT) to facilitate trade—cutting costs, saving time, and increasing international competitiveness. It also highlights the context and challenges, key initiatives, success factors, and impact of Tunisia’s efforts.

CONTEXT AND CHALLENGES Over the past two decades, Tunisia’s trade has become more liberalized, with domestic firms gaining greater access to export markets through an agreement with the European Union and adherence to World Trade Organization rules. But despite initiatives in the 1980s to streamline the flow of information on merchandise trade, trade transactions remained costly and inefficient in the 1990s. Customs clearance requirements, port logistics and procedures, and quality assurance checks strained resources and imposed significant costs on both the government and the private sector. In the late 1990s, cargo spent an average of eight days in Tunisian ports—and often up to 18 days—due to customs, port, and technical control procedures, compared with a few hours in Singapore and four days in Argentina and Brazil. Similarly, customs clearance required an average of four days in Tunisia and, in many cases, up to seven days, while it took just 25 minutes in Singapore and one hour in Morocco. Moreover, Tunisian customs officials physically inspected 50–80 percent of imported merchandise, compared to less than five percent in Singapore or 15 percent in Morocco. There were several reasons for the high level of inspections in Tunisia, among which were lack of modern customs control techniques—risk management and selectivity, lack of modern ICT systems, post-release audits—and, more important, a mindset favoring more control than trade facilitation. Further complicating matters, Tunisia’s procedures for external trade required that documents be processed by multiple entities: the Ministry of Commerce, banks, the port authority, and the customs agency, as well as the usual professional organizations such as customs brokers, shipping agents, and freight forwarders. 4 SmartLessons

The inefficiencies of these trade document processing and clearance practices are illustrated in Figure 1, where the lines indicate the main document exchanges that had to be carried out physically, meaning that hard copies of documents had to be delivered and in some cases picked up again (after several days) for further processing. Underlying these inefficiencies were 19 distinct steps required for import transactions and 15 steps for export transactions. Beyond the costs involved, these cumbersome processes severely impeded the ability of Tunisian companies to respond to or accept short-notice orders, further undermining their competitiveness.

KEY INITIATIVES AND SUCCESS FACTORS In 1999 the Tunisian government—supported by the World Bank through the Export Development Project—introduced comprehensive measures to facilitate trade, starting with the simplifiFigure 1. Trade Document Processing in Tunisia, 1999

cation and automated processing of trade documents, with the European Commission financing the document simplification activities. World Bank support was crucial in initiating and supporting a comprehensive program of trade facilitation involving not only automation of trade documents and processes through the application of ICT, but also customs reform and modernization, the creation of an electronic single window for trade transactions and information exchange associated with cargo handling and clearance, and the streamlining of technical controls inspection procedures and transport processes. The reforms were therefore based on the adoption of international standards for trade documentation and significant coordination among various stakeholders. The number of documents was rationalized. The development of electronic formats for trade documents made it easier to share information among stakeholders and process the information contained in the documents. A key success factor was the commitment at the highest level of government. This was necessary because of the involvement of a multiplicity of government ministries and agencies in trade transactions and clearance. It was also necessary because of the importance of coordinated reform measures at the level of all agencies involved. This was made possible in Tunisia by the close involvement of the Minister of Commerce, who was also the chairman of the Superior Export and Investment Council, a cross-ministerial committee reporting directly to the President. Another success factor was cooperation among private and government stakeholders at all stages of the reform process. This was achieved by creating a steering committee and a technical committee composed of key public and private sector stakeholders early in the process, which served as a cross-agency implementing and coordinating body. The committees were instrumental in both the design and implementation of the initiatives. It was instrumental in coordinating actions by all agencies involved in trade facilitation. It would take only one of the agencies involved in trade transactions to derail progress if that agency was slow in adopting modern processes and technologies compared to other agencies. The committees also played a key role in adopting a phased approach to counter complexity and ensure quick wins to secure confidence; they also sought users’ feedback early on through surveys and evaluation that allowed fine-tuning of the electronic systems. As such, Tunisia provides a good example of stakeholders coming together to simplify trade procedures and automate documentation and customs requirements. Starting in 2000, Tunisie TradeNet (TTN), a semipublic agency, was established to operate a value-added network providing electronic data interchange for stakeholders and expediting the flows and processing of trade documents. TTN shareholders include 10 government agencies, including the national port authority and Tunis Air, and 18 private organizations, including several banks and the Tunisian Internet Agency. The system works with all the actors involved in international trade, including the customs

Figure 2. Trade Document Processing in Tunisia after Implementation of Tunisie Trade Net (TTN)

agency, the Ministry of Commerce, technical control agencies, the Central Bank, ports, private traders, agents, freight forwarders, customs brokers, and banks (see Figure 2). Three main sets of documents are processed through the TTN system: shipping manifests, customs declarations, and technical control documents. In addition, the system processes online tariff payments and transport documents. A connection to the TTN server enables participants to exchange documents and messages with other participants. Shipping manifests and customs declarations are sent over the network, reducing processing times. In addition, manifest data are available to the cargo handling operator in electronic format, eliminating the need for the handler to capture data, and improving planning and operations. TTN provides a flexible user interface: trade professionals such as customs brokers, freight forwarders, and shipping agents use client-based applications designed to process large numbers of transactions, while occasional users can opt for a Web-based interface. The effectiveness of TTN in reducing trade frictions and costs depended on several other measures that were needed to complement the above actions, including:

• Enhancing the customs computer system to support internation-

al message and document standards for automation of manifest acquittal and processing of customs declarations. These changes reduced personal contact between declarants and customs officials; facilitated more rapid, transparent, and consistent processing of customs declarations by eliminating routine manual checks; and enabled better risk management.

• Developing Ministry of Commerce information systems to elec-

tronically process approvals for restricted goods through TTN, thereby eliminating manual delivery and collection of the Certificate for External Trade to and from the Ministry of Commerce.

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• Installing three scanners at key border and port sites to speed 3) Application of IT succeeded when the the verification of consignments. following steps were taken in sequence: first, simplify and/or eliminate some procedures; Furthermore, all of these measures had to be accompanied by second, standardize information that responds back-office reengineering and change management at the level to needs of different operators; and third, of each agency to allow for efficient application of modern facilitate the exchange of information. methods and technologies.

IMPACT Tunisia’s investments in trade facilitation have dramatically reduced import and export processing times. Imported goods can now be cleared from ports in an average of two days. Manifest processing after the completion of vessel operations used to take up to four days, but electronic processing has cut that to one day. Payment of customs and port duties and storage charges now takes only a few hours, rather than a full day. The time needed to prepare and process customs declarations has dropped to 15 minutes, down from as long as three days. In 2003, the physical inspection of goods reached the target level of 15 percent; now they are at the international best practice norm of 10 percent, down from 50–80 percent in late 1998. Trade document processing in Tunisia after implementation of TTN electronic processing of ship manifests has generated savings for the maritime cargo handling operator. Moreover, the TTN experience has shown how ICT can increase the efficiency of government administrative processes. As a result, the TTN platform is being considered for electronic procurement services and other e-government applications.

LESSONS LEARNED

4) Theories and good intentions alone will not deliver project objectives. It was important to identify and attend to practical and logistical issues and processes in the customs supporting environment to maximize the chance of success. Extending electronic processing to all import and export administration and all agencies involved in trade transactions—not just customs—and developing their “back offices” to handle electronic processing of trade documents are key success factors.

CONCLUSION Tunisia’s success has involved much more than applying technology to trade documents. An important prerequisite is commitment at the highest level of government. The second main factor for success is cooperation among private and government stakeholders at all stages of the reform process. The third factor is the simplification of documents and processes at the level of all agencies involved in trade clearance and control, before designing and applying ICT systems. The fourth factor is the adoption of a regulatory framework that allows and supports electronic processing and signatures. The fifth success factor is extending electronic processing to all agencies in trade transactions and developing their “back offices” to handle electronic processing.

1) Trade clearances can improve dramatically when administrative and political commitment Published June 2008. combines with advances in information and communications technology. 2) Involving private sector stakeholders and creating a public-private implementing body from the outset has helped deliver improved design, which has been assimilated into various systems more rapidly. This has also made possible the adoption of a successful implementation approach based on the following steps: (a) a phased approach to allow quick wins and a demonstration effect to show impact and generate further interest in reform; (b) adoption of international standards (e.g., SAD, UN EDIFACT) to allow for easy exchange of required information to trading partners and authorities; (c) user feedback to fine-tune the system and ensure it will respond to the private sector needs; and (d) monitoring of progress and ensuring coordinated application of modern methods by all agencies involved in the trade processes. 6 SmartLessons

Second Prize Winner - Trade Logistics Competition (Round 7)

About the Author Hamid Alavi is a Senior Private Sector Development Specialist for the World Bank. He has worked in the Middle East and North Africa region as the Regional Trade Facilitation Coordinator and is currently working in the East Asia and Pacific region.

A Conflict’s Impact on Project Goals and Reputation Risk: Lessons from the Kosovo Privatization Program Karl Bach When designing and implementing a project in a conflict-affected country, some of the conflict’s more obvious impacts—damage to infrastructure and energy supplies—are apt to immediately come to mind. However, based on the experiences with the Kosovo privatization program, there are additional problems related to a conflict’s aftermath that may be overlooked during a project’s design but should be addressed; these form the basis for this SmartLesson.

BACKGROUND This SmartLesson for Kosovo is timely, given the province’s declaration of independence from Serbia on February 17, 2008. This declaration is the latest chapter in Kosovo’s long history, which includes centuries of close links to Serbian cultural identity; the conflicts of the 1990s between ethnic Albanians and Serbians; the 1999 North Atlantic Treaty Organization (NATO) bombings, which ejected Serbian forces from the province; and the subsequent nine years of governance by the United Nations Interim Administration Mission in Kosovo (UNMIK). Kosovo was the last region of the former Yugoslavia to start privatizing its so-called socially owned enterprises (SOEs)— commercial, manufacturing, mining, and agricultural business entities analogous to state-owned enterprises. The Kosovo Trust Agency, established by UNMIK legislation, was charged with selling the approximately 300 Kosovar SOEs in order to prevent further deterioration of the assets and to promote economic development. After many stops and starts, the privatization program started in earnest in mid-2004, and most expected sales have recently been completed.

policy regarding the conflict and its aftermath be adopted by IFC (and agreed to by any donor organization providing funding) at the outset and incorporated into a project. The lack of such a policy can impact local buy-in with the project, cause reputation risk, and, in extreme situations, undermine political reconciliation. POLICY EFFECT ON PROJECT DESIGN

UN Security Council Resolution 1244, which established UNMIK in 1999, created a temporary political solution in Kosovo with the support of NATO members and much of the international community. UNMIK, along with the donor countries for the privatization program, followed a policy of not prejudicing Kosovo’s eventual final status and equal treatment of ethnic groups.

LESSONS LEARNED 1) An official policy regarding the conflict should be established and incorporated into a project’s design and implementation plan. Every conflict is different, taking into account the historic build-up to the conflict, actions that took place during the conflict, and how the conflict was resolved. It is vital that a

Italian NATO Kosovo Force patrol in Gjakova. SmartLessons 7

The privatization program was therefore designed with these policies in mind. From the design standpoint, the donor organizations advocated having the sale proceeds from privatization held in trust, pending a resolution of Kosovo’s status. Additionally, rather than selling ownership of land held by an SOE, a long-term leasehold arrangement was developed. The board of directors of the Kosovo Trust Agency has both Albanian and Serbian representatives, along with a controlling number of international board members, owing to the UNMIK mandate over the province. In order to obtain local buy-in, experts did their best to address local concerns in the design, within the context of the political mandate. For example, a high-level trade union official on the agency’s board of directors was able to successfully lobby donors and UNMIK to ensure that a portion of each sale’s proceeds were allocated to each SOE’s employees. Because on-going safety concerns made it difficult for Albanians and Serbians to travel to each other’s regions, privatization tender procedures allowed for the submission of bids in both a Serbian majority city and an Albanian majority city, and legal claims arising from privatization could be filed both in Pristina and Belgrade. POLICY EFFECT ON PROJECT IMPLEMENTATION

A project’s management should also ensure that the conflict policy is incorporated into the day-to-day implementation of the project. This is because the appearance of taking sides in the conflict can arise even in the most innocuous of implementation actions. Within Kosovo’s privatization program, there were frequent accusations of political decision-making whenever the Kosovo Trust Agency did or did not schedule a company for sale that was based in a Serbian enclave. All advisory staff should be instructed and reminded to follow the official conflict policy of their employer and donor: remind them that they were hired for their advisory services expertise, not for their political expertise. For USAID-funded personnel in Kosovo, our chief of party would brief consultants on the United States’ policy toward the conflict upon their arrival in Kosovo and remind them when their actions may have come close to violating that policy. Privatization line managers were always open to discussing difficult ethical and policy issues, and the privatization and UNMIK lawyers routinely reviewed privatization-related documentation and actions to ensure compliance with UN Security Council Resolution 1244. In Kosovo, the privatization agency had field offices throughout the province in both Albanian and Serbian areas. Because there was very little intermingling between the ethnic groups, advisory services experts in these offices were often exposed to only the Albanian or the Serbian perspective of the conflict, rather than to both. Vigilance was necessary to maintain the official policy of neutrality with regard to the conflict, often through the staff’s over-reliance on the agency’s international lawyers to catch actual, perceived, and inadvertent biases during legal reviews of privatization documentation. Some bias 8 SmartLessons

Historic buildings in Pristina.

still occasionally slipped through: In one extreme example, a letter to the editor from an international advisor printed in the International Herald Tribune, calling for the independence of Kosovo, was a contributing factor in that advisor’s dismissal. If real or perceived bias is seen by the larger community in everyday project activities, this can undermine trust established with local partners and the public, resulting in a damaged reputation for IFC, a potential weakening of donor resolve, and ultimately jeopardizing the success of a project.

2) Because missing information can raise unexpected risks for advisory service goals and IFC reputation, the issue of such information should be addressed during both project design and implementation. If damage during a conflict has been significant and widespread, a policy should be developed to manage operational and reputation risk resulting from missing information related to key assets and personnel of local project partners and clients. If a client or partner does not have a proper relationship with its key assets and personnel, legal and practical complications will inevitably occur. When developing such a policy, a pragmatic balance needs to be struck between the reduction of such risks and the risk of operational paralysis; any policy must accept that surprises will

inevitably occur and that the risks can only be mitigated rather than eliminated. MISSING CRITICAL OFFICIAL INFORMATION

The 1999 conflict in Kosovo resulted in a large percentage of destroyed or missing government and company records related to land registration, title to assets, and liabilities of the SOEs scheduled for privatization. For the privatization program, this frequently resulted in uncertainty as to whether there was a legal right to sell certain assets if ownership/registration could not be comfortably determined. Our advisory services resulted in UNMIK-adopted legislation aimed at establishing a form of eminent domain (government appropriation of private property) over assets of uncertain ownership in order to allow the Kosovo Trust Agency to sell those assets with clear title. Despite this legislation, litigation, human rights complaints, frequent bad press, and ad hoc protests resulted when competing evidence of asset ownership surfaced. While such factual uncertainties are particularly important for a privatization program, they can also pose a reputation risk for all types of advisory services providers and can undermine the achievement of project goals. In order to mitigate this risk, a policy of due diligence as to the ownership of key assets should be developed—something that might not be necessary in a non–conflict-affected country. When primary information is missing, ownership can often be inferred through court checks, indirect documentary evidence such as tax records, and statements from disinterested parties. A contingency plan should also be developed for when inevitable surprises arise. In the case of the Kosovo privatization program, there were periods during the tender and sale completion processes during which claims against sale assets were reviewed before proceeding to final sale. MISREPRESENTATION BY PEOPLE WITH APPARENT AUTHORITY

Another problem was the arrival of people who purported to be managers of an enterprise scheduled for privatization but who in fact had no such authority. This can result in embarrassment for the project implementer and put project goals at risk. Therefore, this is another topic worthy of supplemental due diligence in a post-conflict country. Should primary information be missing, asking to see labor books (a type of workhistory passport used in some countries) or other indirect evidence such as tax records and interviews with subordinate staff can help increase the comfort level.

3) A policy should be developed regarding who should be excluded as project partners and clients, tailored to balance reputation risk, the need to achieve advisory or investment goals, and the nature of the conflict.

Regular people can get involved in wrongful behavior during a conflict—everything from smuggling and looting to war crimes. Further, in the fog of conflict and in an ethnically or politically charged environment, current and past accusations against individuals and eventual convictions may not be based on accurate facts. When designing the Kosovo privatization program, experts struggled over who should be allowed to bid for companies and assets. It was difficult to develop criteria that were pragmatic, even-handed, and politically acceptable to local interests, taking into consideration the repressive tactics of Serbian authorities against Albanians before 1999 and the atrocities committed by both ethnic groups in the lead-up to and aftermath of the NATO intervention. In addition to AML/CFT (anti– money laundering and combating the financing of terrorism) checks similar to what IFC performs, criminal background checks of winning bidders were carried out. Ultimately, the privatization rules of tender barred people from bidding if they had been convicted of a felony after June 1999, with that date reflecting the end of major hostilities and the introduction of international administration and NATO control. This was not a fully satisfactory exclusionary policy, however, and after each wave of tenders, there was relief when criminal background checks failed to find legally and morally questionable bidders that were not excluded in the above policy. IFC should do its best to develop objective policies on whom it will or will not work with in a conflict-affected country. Such a policy should balance the typical exclusionary rules of IFC and the nature of the conflict. The policy likely needs to have more flexible standards than what might be developed for a non– conflict-affected country; otherwise, it might be too restrictive to achieve project goals.

4) Design and implement a system for preserving project memory. In a conflict-affected country, a high turnover of international staff is common, due to the hardships in such a posting and the fact that it is often unsuitable for dependents. The result can be a revolving door of foreign experts and the risk of endless reinvention of the wheel. This problem was especially acute with the Kosovo privatization program. Some foreign experts would dump 20 lever arch files into a storage room on their last day in the office and say, “All my files are there.” With that act, a year or more of insights, lessons learned, and the work product could become immediately obscured. When new managers or experts would arrive, they would often be eager to “make their mark” and start designing new systems or policies that could directly contradict a preceding policy or result in the throwing out of months of work product. A frustrating example of this was SmartLessons 9

the endless renegotiation of the rules of tender for privatization with all stakeholders every time a new agency manager or expert would arrive. To ameliorate this, as one of the project members with the longest institutional memory, I began a file memorandum system, explaining in detail the policies that went into the development of key features of the privatization implementation system and how I conducted legal analysis of privatization deals. Admittedly, this represented only a portion of all the policy and implementation work by the agency. It is therefore recommended to have an institutional memory plan from the outset of advisory service operations; this could include requiring consultants to produce such “memory memos” as a contract deliverable.

CONCLUSION While the conflict in Kosovo was particularly complex and had an unprecedented post-conflict period with its status as a UN protectorate, universal lessons can still be drawn from the advisory services work conducted in furtherance of Kosovo’s privatization program. The lessons summarized above will hopefully be useful for IFC’s work in other conflict-affected countries, or for future IFC work in a newly independent Kosovo. Published in April 2008. First Prize Winner- Conflict-Affected Countries Competition (Round 7)

About the Author Karl Bach was an Operations Officer for IFC Advisory Services in Europe and Central Asia, based in Kazakhstan. Between 2002 and 2006, Karl was based in Pristina, Kosovo, where he was a legal advisor on the European Unionand USAID-funded team that designed and implemented the Kosovo privatization program. As of August 2009, he is a Conflict Officer for the World Bank Office of Ethics & Business Conduct.

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Public Service Announcements on TV: An Effective Tool for Reaching Entrepreneurs in Tajikistan Andrea Dall’Olio and Teresa Ha Improving the regulatory environment—i.e., producing business-friendly regulations—is often seen as the main goal of investment climate programs. However, an effective regulatory framework is not enough by itself: entrepreneurs and public officials have to be aware of the new regulations in order to apply them to their day-to-day business activity and ensure impact. IFC’s Investment Climate Advisory Services in Tajikistan took a unique approach to increasing public awareness by creating a series of public service announcements (PSAs) for television.

THE NEW LAW In July 2006, the Government of Tajikistan, with help from IFC’s Investment Climate Advisory Services, adopted the country’s first-ever law regulating business inspections. By doing so, the government demonstrated to the public at large and the business community in particular that it was committed to putting in place business-friendly regulations. The law clearly identified the bodies entitled to carry out inspections and laid out inspection procedures aimed at bringing transparency into the inspections process and reducing corruption. At the same time, the law introduced the concept of risk-based inspections. For example, a company that has never committed a serious violation of the fire regulations or is operating in a sector that does not pose serious fire concerns is considered a low-risk entity and as such is subject to less frequent fire inspections.

CHALLENGES TO MAKING THE LAW REAL Although the project team recognized that the Tajik government had taken a great step toward improving the regulatory environment in Tajikistan, it was not until we began to work with the government to implement the law that we realized the extent of the challenges that still needed to be overcome. For example, when we began producing checklists to be used during fire inspections, we discovered that the government had just one copy of these regulations (dating back to Soviet times) available for inspectors in the entire country. Clearly, if even inspectors had limited access to the regulations, there was no way for entrepreneurs to access them— even if they were aware of their existence and wanted to comply.

At the same time, the government faced the broader and more fundamental issue of how to make entrepreneurs and public officials aware of the new law on inspection. The normal practice in Tajikistan is that the government publishes newly adopted laws in the national newspapers. These newspapers, which come out weekly, are neither widespread nor widely read. The laws are publicized as originally drafted and are often difficult to read by entrepreneurs with limited legal knowledge. In the case of business regulations, there is the added issue of there being few journalists with knowledge of business issues to help the public make sense of laws and regulations. The fact that laws, which are written in the formal Tajik language, often include words that are basically unknown to the average entrepreneur compounds the challenge. We had a chance to test this out during our “fire inspection regulation” awareness events held in marketplaces all around the country. While distributing brochures and fire inspection checklists to attendees, we realized that many of them had not heard of the word “entrepreneur” and did not know what it meant. This was because the word used in the law differed from the common language An inspector makes his first used by merchants inspection. in the bazaars. SmartLessons 11

THE WAY FORWARD - DEVELOP A STRONG COMMUNICATION STRATEGY We developed two separate communication strategies to support our twin goals:

Why PSAs in Tajikistan? • No strong press • Legal jargon inaccessible for entrepreneurs • Limited legal awareness of entrepreneurs • One government TV station covering the entire country

• To have all public inspectors in the country informed about the Trainers” program managed by IFC local partners. They were law and made knowledgeable about how to apply it to their inspection work; and

• To have the business community, and in particular small and

medium enterprise (SME) entrepreneurs all over the country, be aware of the law, its benefits to their businesses, and where they could go to learn more about its provisions if they were interested.

Informing inspectors, although a complex task, was a manageable one. Indeed, even before the proposed reforms to business inspection became law, the project had been piloting the application of their procedures with two government agencies (the Fire Department and the Sanitary and Epidemiological Services). We started by training their officials. Then we created a pool of trainers, who received additional training. The project then supported their deployment as trainers of fire inspectors and sanitary inspectors around the country. The pilot was a success, and its approach has since been adopted by other government agencies. Informing SMEs, however, was the real challenge…

LESSONS LEARNED 1) A critical mass of entrepreneurs needs to be aware of the laws for them to have impact. We did not rely on the print media for creating public awareness. Instead, our initial communication strategy was to work with and educate nongovernmental organizations (NGOs) and business associations that train SMEs directly—i.e., a “Train the Benefits of working with the government: • Sends a message to officials as well as entrepreneurs about state support • Government-branded PSAs show that government is leading the process • Free airtime Why not pay for airtime? Advertising costs on Tajik TV were quite low (around $10,000). However, we insisted on not paying for airtime. Why? • IFC policy does not allow payment for communication services (although this case was somewhat different). • We wanted full government commitment to the initiative, not only to us but also to the general public.

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tasked with creating awareness of the existence of the law among SMEs and explaining its provisions. Although this approach had worked well for us in the past, we soon realized its limitations. Not enough entrepreneurs were attending these events to allow us to achieve our goal, which was to create knowledge of the law among a critical mass of SME entrepreneurs and the wider business community. We needed to find a way to get entrepreneurs aware of the law and sufficiently interested in its potential benefits to want to attend our events and learn more. We adjusted our strategy and decided to create a series of public service announcements for television where we could explain the main principles of the new inspections law and why the law might be beneficial for SMEs. The approach we adopted was as follows:

• Step 1: PSAs created the minimum awareness level about the

law and provided the basic tools for entrepreneurs to use some of the provisions of the law to protect their rights. Once aware of the law, some of them could independently obtain more detailed information.

• Step 2: SMEs that would be interested to learn more and would

not be able to do so independently could enroll in the training sessions provided by our partners and be made fully aware of the details of the law. We felt that this was the winning communication strategy that would get people’s attention, increase knowledge of the new law, and maximize its impact among people in our target group.

We chose television because the concept of using public service announcements for advertising on TV had just come on the advertising scene in Tajikistan and was being used by the private sector. We thought that audiences would be attracted to the new “advertising” tool even if, as in this case, it was being used by the government to broadcast information about a new law. The choice of broadcasting on the state TV station was deliberate: Channel One is one of only two television stations with national coverage (it covers 99 percent of the country) and the only public station. By airing the PSAs on state TV, we would reach a wide audience with information on the new law as well as signal the government’s commitment to the message of the PSAs.

2) Get government support and participation from the beginning: Identify a private sector

champion in government and work as partners from concept development to final product. We knew that government buy-in and strong collaboration are critical to the success of any communication strategy. We had tried to work with state-run TV stations in other countries but encountered serious delays and obstacles in convincing the government to run IFC-sponsored programs or advertisements. In Tajikistan, we tried a different approach. We identified the State Investment Committee as the private sector champion within the Tajik government, then sought and won their support for the communication strategy. Together, we began the process of developing the PSA component of the strategy. From the start, they were really very hands-on and involved in every aspect. We designed the concept of the PSAs in-house with government input and discussed each of the plots and the initial project draft with the State Investment Committee.

It was not a short process—three months to develop and finalize the concepts alone. But this iterative process of multiple exchanges allowed us to obtain a product that both sides were very happy with: not only fully compliant with our requirements, but also “ready to be aired” on national TV. So happy, in fact, was the State Investment Committee that, while acknowledging the support of IFC and our donor (the Swiss Government—SECO), the committee branded the PSA message as its own. It then went further and used its influence to get Channel One management to agree to broadcast the PSA series during prime time for free and according to our predefined sequence. Total cost of the entire product, taking into account the free air time provided by the Tajik government: less than $10,000.

3) Air a series of PSAs to build momentum and retain interest.

This is important. We created a total of four PSAs. They were scheduled in sequence, so that after the first PSA was aired, each Figure 1. Storyboard for our Announcements subsequent PSA could build upon its messages. Special attention was paid to translate the provisions of the law into simple messages easily understood by the general public and entrepreneurs alike. Over a two-month period they were aired four times a day during prime time (7:30am, 8:25pm, 9pm, and 9:55pm). In addition to the airings on Channel One TV, the PSAs were played on large public television screens around Dushanbe, such as at the airport and in public squares. A second series is planned to be broadcast in the next months to reinforce the message. Watch the PSAs online at: http:// www.ifc.org/ifcext/tajikistansme.nsf/ Content/Awareness;

4) Combine PSAs for television and on-theground learning-the-law events to gain maximum impact. In order for the events to better complement the PSAs, the team developed a new and more comprehensive “Train-the-Trainers” program that could organize more effective learning events for entrepreneurs. SmartLessons 13

The project developed a specific training module addressed to the partners’ trainers, as well as a detailed brochure to be distributed to SMEs at events. Specific support to the trainers in delivering the messages and a monitoring tool to measure the results complemented the “train-the-trainers” initiative. We partnered with four main organizations to roll out the improved program (international organizations as well as local NGOs) implementing SME programs around the country. They were chosen because they had an extensive network of local trainers in place, which when combined gave us adequate coverage of the entire country. This was the winning communication strategy that got people’s attention, increased knowledge of the law, and maximized its impact among our target group.

CONCLUSION In September 2007, we surveyed 230 entrepreneurs to get a high-level assessment of the impact of the PSAs. Of those surveyed, more than 25 percent had seen the PSAs, and almost half of those remembered the key takeaways: “Advance notice is needed three days before an inspection” and “No more than one inspection every two years.” The team was satisfied with this feedback. We had invested heavily in the product. From hiring the film maker (an international consultant with a specialty in photography and film-making), to identifying a local market in which to shoot the movie, we participated in the shooting, hired one of Tajikistan’s most popular film stars as the hero of the entire sequence, and even had some of the IFC staff featured in it. The Fire Department, one of our pilot agencies in implementing the inspection reform, was particularly impressed by the result of our PSAs. In fact, they requested our support in developing a Figure 2. Schedule of PSA Airings

14 SmartLessons

specific PSA focused on fire prevention rules. In December, their PSA was broadcast as well, complementing the work done on inspection reform. Trainers participating in our learning-the-law programs who saw the broadcast PSAs were, in most cases, extremely enthusiastic about them. We have also begun to use PSAs during our training events. We have found them an effective tool when talking to attendees about what they should expect “before,” “during,” and “after” an inspection. We expect to see a higher attendance at the specific training events organized by the project and its partners on the provisions of the new law. As we stated in the beginning, the key to long-term, successful change in the business inspection regime in Tajikistan is a new category of well-informed entrepreneurs and inspectors, who are spearheading the application of its laws and regulations to their work and businesses. Published in June 2008. Second Prize Winner - Round 7

About the Authors Andrea Dall’Olio was the Project Manager for the IFC Tajikistan Investment Climate Project and is now Sector Coordinator for Private and Financial Sector Development for the World Bank, covering Central Asia. Teresa Ha was a Communications Associate for IFC Advisory Services in Europe and Central Asia.

Seeking Scale: Business Entry in Indonesia Dyan Shinto Ekopuri and Hans Shrader Indonesia consists of over 10,000 islands and 400 powerful district governments. There is no such thing as a standard business entry licensing procedure, and the quality of regulatory administration is highly varied. This SmartLesson examines IFC’s effort to achieve strong impact of business entry reforms in a large, complex, and decentralized economy.

BACKGROUND The archipelago known as Indonesia consists of some 10,000 islands sprinkled without rhyme or reason over a space roughly equivalent to that of the continental United States, but mostly made up of ocean. These islands are plagued by poor infrastructure, quite basic communication facilities (think land lines that would be hard pressed to transmit faxes regularly), and limited transportation links to all but the core population centers. Add in a deeply established bureaucracy and a confusing tangle of national and sub-national laws, and it is no wonder that Indonesia owns the Business Entry Doing Business ranking of 171 out of 181 countries. Many development organizations, including IFC, have been working with subnational governments to help streamline business entry. Since 2000, some 50 districts have received assistance that usually leads to the establishment of a OneStop Shop (OSS) licensing office; in most cases, these efforts have shown success. However, with well over 400 districts in Indonesia, there are just too many for one or even a handful of reform organizations to work one-on-one with them effectively and efficiently. Using its convening power and access to national-level government, IFC connected with the Indonesian Ministry of Home Affairs to help all district governments implement effective business licensing offices. The project developed a set of guidelines informing district governments how best to establish and run licensing offices. The guidelines were drafted by a number of experienced district-level reformers and so had elements of good and tested practice incorporated in them. Midway through the project, the guidelines were disseminated to all 470 districts and, most unexpectedly, many of the important elements of the guide-

lines were adopted into a National Decree—providing added weight to their implementation. Of 180 districts participating in a survey, 20 percent have adjusted their current OSS operations to the guidelines, and 65 percent have established an OSS or expanded its services based on the guidelines. IFC is beginning to work on a monitoring and evaluation program with provinces (one level up) to help districts in the proper establishment of licensing offices.

LESSONS LEARNED 1) Choose your partner well, even if that means taking more time! Like marriage, choosing the right partner is essential! First, it was necessary to partner at the national level to properly address issues of scale, adaptability, and replicability. In Indonesia there is actually some choice—e.g., the Ministry of Trade is responsible for some business entry licenses, and the Ministry of State Administrative Reform leads on issues of civil service perform and process reform. Both were interested in this work and would have made reasonable partners. In our case, however, the Ministry of Home Affairs (MoHA) provided the best opportunity. The ministry was tasked to work on OSS development, and it is seen by subnational entities as their leader; hence, guidance and direction coming from MoHA are likely to be respected. MoHA also has the authority to oversee implementation of decentralization policy in Indonesia, and it rates annual district performance, which has a direct link to national-level budget allocation. Most important, MoHA wanted to do the work! We took time to meet with the potential partners and discuss modalities of assistance, rather than move though the first open door. SmartLessons 15

2) If sustainability is your concern, put your government client in the driver’s seat! But expectations must be set, managed, and communicated earlier on. After taking the first step to address scale (securing a viable national-level partner), the next challenge for the project was to ensure adaptability of good practice and sustainability. We needed to create tools that would help districts to embark on their simplification project without being dependent on IFC or other reformers. This tool, the Guideline, is easy for even the least sophisticated districts to follow and yet still be applicable to the more advanced regions. Drafters’ views of the practicality in developing the guidelines secured both input and, thus, acceptance from the districts. The start of the ride was bumpy. The MoHA alluded to the freedom of choosing their own consultant as they were not completely comfortable with “foreign” advice, thinking that no one can know Indonesia better than they do. Eventually, through sheer perseverance, we formed a productive working relationship that led to a steady but gradual transfer of project leadership from IFC to MoHA. MoHA took full ownership of each of the outputs and fully participated in the drafting and consultative process of the guidelines—work they initially thought would be done for them. By the time of the launching, MoHA was out in front, which created a positive buzz about the guidelines. Every institution needs recognition. Participation and public recognition as the driver of the change put MoHA at the forefront of the reform initiative. This guaranteed districts’ participation and paved the way for sustainability.

This project benefitted greatly from collaboration with the Asia Foundation (TAF), which has been very active in supporting the development of licensing offices with districts. With ten years of experience, TAF brought strong and highly relevant reform experience to the team. It also brought its checkbook, funding close to a third of the program. Its most important contribution, however, was in being a partner and collaborator. When IFC refused to abide by MoHA’s push for “project fees” and its own procurement practice, MoHA hinted that it might rather do business with TAF. Since TAF was on the team working closely with IFC, this left no room for MoHA to play off potential development competition. With few options, MoHA eventually subscribed to IFC’s operating policies. A second collaboration, with a World Bank Trust Fund, is underway for the third phase of this project. This has led to a 6:1 U.S. dollar leverage ratio of IFC funds and the opportunity to co-manage a related regulatory reform program. Unfortunately, implementation of this third phase has been significantly delayed by the World Bank’s procurement procedures (over six months!), but we are confident that once they are completed, the relationship will be highly beneficial on many levels. The combined funding and management authority allows for the inclusion of a Regulatory Impact Assessment component and extends work to a second pilot province in a frontier region, effectively doubling the number of districts benefiting from the project.

5) Knowledge is key, but customization is king.

3) Getting your hands dirty at the beginning earns you credibility. It gives confidence and substance to the advice given when working with a diverse team of reformers.

IFC has done regulatory simplification in many places to date; we even have a toolkit on this initiative which comprises global good practice and lessons learned. But global knowledge matters only when it is applied relevantly to local circumstances, and this comes from active listening to client needs and appropriate application of knowledge and experience.

IFC has worked at the district level on the implementation of licensing simplification work. The engagement process was challenging, but it provided the experience and credibility IFC needed in order to be accepted by MoHA. This relationship turned out to be mutually beneficial: MoHA works top-down and knew how to manage the vast number of district governments that would be engaged in licensing simplification. IFC’s hands-on experience at the district level complemented MoHA’s perspective and contributed to a practical and usable set of guidelines.

A case in point is the monitoring and evaluation (M&E) mechanism. The Regulatory Simplification Toolkit opened the door to a serious discussion on M&E. It also informed what constitutes good practice: rigorous reporting by way of a post-initiative assessment report and comprehensive post-implementation performance reporting. MoHA’s decades-old reporting requirements were not in step; they focused on whether a district has meet statutory requirements, rather than providing feedback on quality or implementation performance.

4) Together we are stronger: How collaboration gets you further ahead—with significant cost reduction and bigger impact!

To meet the Toolkit’s suggested best practices, broad civil service reform would be needed. This was unrealistic. A compromise was needed, and the local IFC team was able to frame it accordingly: it suggested an M&E framework that made use of

16 SmartLessons

currently utilized reporting methods to support modified, but improved, feedback on issues pertaining to level and quality of OSS operations; e.g., asking “What legal status does your OSS have and why?” rather than the previous question, “Do you have an OSS?” While the revised reporting system is not as robust as we would like, it is a sufficient first step that has led MoHA to actually consider investing in an electronic M&E system. A set of standard good practices is important for setting a path and vision for what the future might look like. To move down that path, small and incremental steps often times are more palatable to clients and are effective in generating reform momentum. However, this approach needs to be taken judiciously; IFC teams need to balance this approach with one that brings more comprehensive reform to the forefront faster. The latter method, while perhaps not always effective, is preferred.

About the Authors Dyan Shinto Ekopuri was an Associate Operations Officer in IFC Advisory Services in Indonesia. Shinto joined IFC in 2006 focusing on investment climate work, notably in the agribusiness sector. Hans Shrader was the Program Manager of the Investment Climate Program for IFC Advisory Services in Indonesia and is now based in Beijing.

6) It ain’t over ‘til it gets measured: Good M&E paves the way to healthy competition and accelerates reform initiatives. Lenny Kravitz might be singing “It ain’t over ’til it’s over,” but at IFC we sing, “It ain’t over ’til it gets measured.” One year after the guidelines were launched, we embarked on a national survey to find out if they were being used as a reference point for setting up new one-stop shops. Of 180 districts participating in the survey, 20 percent responded that they had adjusted their current OSS operations to the guidelines, and 65 percent indicated that they had established an OSS or expanded its services based on the guidelines. It appears that the guidelines have been effectively utilized broadly across the country, and that a few simplified procedures can go a long way to help with business entry. The Indonesian nongovernmental organization KPPOD, author of the local government competitiveness survey, has incorporated OSS performance as one of its categories, and its president has given awards to districts with the best performing OSS (243 were eligible last year). All this work has created a positive spillover effect: other districts, not wanting to be outdone by their neighbors, have accelerated their reform efforts. Further, the demand for quality M&E has increased, which is why IFC is now addressing improved M&E mechanisms with MoHA. Published in January 2009. First Prize Winner - Round 8

SmartLessons 17

Exporting by Mail: An Innovative Trade Facilitation Tool Jose Luis Guasch There are many firms, mostly micro and small, that are de facto excluded from the export chain by virtue of their location (operating in small villages or cities with minimum or no support for export services), a lack of information (knowing what it takes and how one exports), the cost of export services (the need to use customs and logistics agents), and/or a lack of knowledge of proper packaging, etc. Our solution was to design a new tool that would tackle all of those problems. This tool is exporting by mail.

BACKGROUND

RESTRICTIONS

The Competitiveness and Trade Project was implemented by the World Bank in Peru with the objective of facilitating exports by micro and small firms located all over the country. The World Bank team, building on the Brazilian experience, worked with the National Tax Administration Superintendency (SUNAT), the Office of the Prime Minister (PCM), the Trade Ministry, two Export Promotion Agencies (PROMPERU and PROMPEX), and the Post Office, to develop and implement the tool. Even with minimal publicity, the response has been extraordinary. This approach is currently being considered and/ or implemented in a number of other countries as well, with or without World Bank involvement.

The value limit is $2,000 (later to be extended to $10,000). Maximum weight is 30 kilograms. There are also limitations on the size of the package: the sum of the three dimensions cannot exceed three meters. However, there is no limit to the number or frequency of packages sent.

HOW IT WORKS This trade facilitation program is called “Easy Export.” An individual or firm needs to take a package to the nearest post office (although pick-up service from the post office is also available), which provides free packaging. The sender has to fill out a form (export declaration) on the Internet (available at the post office if needed). The post office weighs the package and scans the export declaration form. The user pays the fee for the type of service desired. End of story.

WHAT IS BEING EXPORTED Jewelry, alpaca and cotton garments, food supplements (natural products), cosmetics, wood art and crafts, shoes and leather, processed food, metal tools, etc.

18 SmartLessons

IMPACT Within six months of the start of the program, more than 300 firms have used Easy Export to ship goods with a value of more than $300,000, and the trend is sharply increasing. Most of the users are new exporters—microentrepreneurs and small firms. Many of these are in some of the poorest areas of the country. And the trend is ever increasing. Since the beginning of the program, the monthly rate of increase in the number of firms and packages has been over 30 percent.

BENEFITS Highly simplified trade logistics: The exporter does not need to use a customs agent, logistics agent, or freight forwarder to consolidate the merchandise; even the packaging is provided for. All that is needed is to go to a post office (one that has a scale and a paper scanner) and use the Internet to fill in the export declaration for the tax agency.

OTHER BENEFITS Competitive tariffs, and three types of service: • Urgent: four to five days delivery • Rush: seven to 10 days delivery • Economical: 15 to 20 days delivery This includes free packaging, pick-up service, tracking, insurance coverage, frequent user discounts, and even credit services. All services are priced for cost recovery, so there is no subsidy.

LESSONS LEARNED The key motivation was to address the concerns of both the micro and small producers that trade initiatives were only for the “big” guys. The issue can be politically sensitive, so we decided to bring policymakers on board early on. We secured the support of the Prime Minister, and under his leadership we brought in the critical players: SUNAT, the Minister of Trade, PROMPERU, PROMPEX and the Post Office. We also brought in the Brazilians to learn from their experience. While there were some concerns in the beginning, when we explained the details of the program, we acquired the strong support and endorsement of those key players. Where we did find some resistance was from the private customs agents, perhaps understandably, since they felt they would be losing business. A compromise was reached based on setting a maximum value of the packages to be exported ($2,000) but with the agreement that we would revise the maximum value a year down the road (the plan is to extend it to $10,000). Another critical element was to secure financing for the post offices, since for the program they needed a scale, a paper scanner, and in some cases Internet access if access was not available in the village as the export declaration has to be sent to SUNAT by Internet. We addressed that issue by committing some funds from the World Bank project. The project was implemented in two phases. We started by equipping 29 post offices; and in a second phase, based on results, we would go to 60. To keep the process simple, we designed a simple export declaration form to be filled in via the Internet.

We noticed that in many remote places, small cities, and villages, firms did not use or have access to proper packaging. The solution was to provide the packaging at the post office; this has proven critical for the success of the program. To address the limited mobility of some of the users, the program provides pick-up service through the post office. Finally, to address some of the concerns of the microfirms, the post office also offers insurance and even credit services (the post office was responsible for finding the proper partners for those services). Another critical element was the support led by the Export Promotion Agency to locate clients abroad. Reaching to the diaspora to identify friends and relatives and small distributors as possible clients and recipients was critical. A Web page and an online interactive database facilitated the contacts.

What we could have done better Peru has signed a relatively large number of free trade treaties. Most products exported to countries covered by the treaties have zero tariff, but to receive that benefit, a certificate of origin is needed, stating that the product and or parts were produced in Peru. That certificate is usually provided by a government agency or chamber of commerce. However, in most small cities that service is not offered. We did not think of this as an issue then, but we are working on a solution that is relatively simple—the digitalization of the certificate of origin, which will allow access online. Also, we needed a more systematic publicity and information campaign, not only on the existence of the program but also on the associated services offered and the range of products that could be exported. Even as the impact has been significant, surveys have indicated that many firms were not aware of the option (that was not surprising, since there was not a significant public information program). That is being corrected.

SmartLessons 19

Another improvement that would enhance the impact—and we are working on it—is the use of a local intermediary or broker to disseminate information about the program, inform about products in demand, and facilitate identification of buyers abroad. We believe this will lead to increased use of the service, to the benefit of the micro and small producers.

Critical elements for success As successful as the program has been, it will be even more successful when a broad publicity campaign is in place, an information and training program to identify potential clients abroad is functioning, certificates of origin are digitalized, an Easy Export Web portal is launched, e-commerce tools are further enhanced, and all post offices are provided with scales and paper scanners. Published in June 2008. First Prize Winner - Trade Logistics Competition (Round 7)

About the Author Jose Luis Guasch was a Senior Adviser on Competitiveness and Regulation in the Sustainable Development Department of the Latin America and the Caribbean Region of the World Bank. A Spanish national, with an Engineering Degree from Polytechnic University of Barcelona and a PhD in Economics from Stanford University, he has been at the World Bank since 1992, assisting countries in improving competitiveness.

20 SmartLessons

“Dividing the Wheat from the Chaff”: How to Get at the True Picture of Entrepreneurship behind Misleading Statistics— Lessons from Ukraine’s Example Yuriy Kuzmyn and Florentin Blanc In recent years, a growing emphasis has been put on results measurement and on using hard data to evaluate and steer policy. Given the significant efforts in many countries to simplify business entry, this has led to an interest in using data from business registries to compare the number of businesses and the dynamics of entrepreneurship across countries. Significant differences between the officially reported figures on entrepreneurship (which get reflected in international indices) and the real situation mean that the design of reform interventions and solutions can be seriously misguided. The government as well as the donor community, and not least IFC, need to take this into account when designing programs aimed at fostering private sector development. Paraphrasing the well-known slogan “what gets measured, gets done”—wrong measurement will lead to wrong actions!

MEASURING IS ESSENTIAL…BUT MEASURING WHAT? When asked last year about the survival rate of Ukrainian companies, the IFC Investment Climate (IC) advisory services project team in Ukraine was unable to respond immediately, as such data are not computed by the State Statistics Committee of Ukraine. The team volunteered to look into the data and try to calculate it. The routine process (we thought) of examining both databases in order to calculate the survival rate suddenly yielded some startling and unexpected results. The most striking differences were that the World Bank Group Entrepreneurship Database (WBG ED) reported more than twice the number of companies than the IFC project had thought there were in Ukraine. In addition, the annual growth rate in the number of companies appeared to be much less according to the World Bank database than according to the IC advisory services project: +4.3 percent against +7.1 percent a year. In short, entrepreneurship in Ukraine appeared more developed (higher numbers) and simultaneously less dynamic (lower growth) according to the WBG ED. Efforts got underway to try to understand this discrepancy. In this SmartLesson, we share what we learned in the process. It is worth noting that the discrepancy is already considerable when one looks at companies. When attempting to count sole

proprietors, the gap between registered and active worsens. In Ukraine, though no official data are available, it is estimated that only about one quarter (24 percent) of the 1.98 million registered sole proprietors are active.1

LESSONS LEARNED 1) ”Global-local”: Your key to better data. Officers working for a national statistics agency may not have sufficient legal or economic expertise or be familiar with international practice. Often they do not want to provide more information than required in their work plan. When one fills a request to compute aggregates from their datasets, at best they The World Bank Group Entrepreneurship Database (WBG ED), a joint effort led by IFC and the World Bank Development Research Group, is known as the most comprehensive dataset on crosscountry firm entry data available today. It includes cross-country, time-series data on the number of total and newly registered businesses and was collected directly from the registrars of companies via questionnaires. On the other hand, the IFC Ukraine Investment Climate project has for several years been collecting data on the number of registered and active companies in order to structure the sample for business environment surveys and to provide basic data on the evolution of entrepreneurship in the country. 1 According to ”Omnibus” survey conducted by IFC Investment Climate project in Ukraine in 2007.

SmartLessons 21

provide what one specifies in the request Figure 1. Enterprise Demography in Ukraine—Conflicting Pictures… letter. No wonder that if any question is slightly vague, the request will be anEvolution of business in Ukraine swered in a haphazard way. In addition, statistics in each country have their pe26.7 Density of enterprises per 1,000 active culiarities in terms of definitions. To deal population, 2006* 11.8 with these issues in Ukraine, we used Enterprise entry rate, average for 2005-2006 5.9% our local experience of how business 7.1% (newly registered to total registered) statistics are structured and our global WBG W BG ED ED database database knowledge of what should be considered Annual growth rate in active enterprises, 4.3% as an enterprise. Our project found that, 7.1% average for 2005-2006* IFC Ukraine IC BEE while not being a major part of official database statistics on businesses, data on active ** Based on registered registeredenterprises enterprisesfor forWWBG EDand andactive activeenterprises enterprises IFC Ukraine Based on on data on BG ED forfor IFC Ukraine companies in Ukraine are available. To IC project; forsake the sake of comparison ED,on data sole proprietors not included. BEE; for the of comparison with Wwith BG WBG ED, data soleon proprietors are not are included. Source: Committee of of Ukraine; WBG EDED separate entities that correspond to the Source:State StateStatistics Statistics Committee Ukraine; WBG internationally acceptable definition of enterprise from others that are registered we adopted the definition used by Eurostat: “The enterprise is in the state registrar but do not carry out commercial activity or that do not fit the Eurostat definition, the smallest combination of legal units that is an organizational required joint work by the project’s legal experts and economists unit producing goods or services, which benefits from a certain to match the list of legal and organizational forms set by national degree of autonomy in decision-making, especially for the allocation of its current resources. An enterprise carries out one legislation with the above definition. or more activities at one or more locations. An enterprise may Cooperation between local World Bank Group teams and the be a sole legal unit.”2 This definition is consistent with the one WBG ED team can help in understanding the specifics of each used in the 1993 System of National Accounts and Internacountry’s statistics and in gathering more reliable statistics that tional Standard of Industrial Classifications. reflect better the real situation of entrepreneurship and allow Aiming to have indicators that could be comparable across counmeaningful international comparisons. tries, we applied these criteria to include only certain types of legal entities registered in the Ukraine Business Registry—namely: 2) Define what you count. Despite the fact that international definitions of enterprises or businesses do exist, there are still ample variations, and the rules that govern what statistical offices do largely reflect institutional and administrative arrangements that exist in their country. Therefore, indicators of business demography may differ from country to country. For the purpose of our work in Ukraine, Table 1. Number of Enterprises and Corporations per Different Definitions INDICATOR Total entities in the business registrar as of January 1, 2007. Of them:

REGISTERED 1,330,200

Total enterprises (per WBG ED)

830,719

Total enterprises (per IFC Investment Climate Ukraine)

632,759

Total corporations (per WBG ED)

494,730

Total corporations (per IFC Investment Climate Ukraine)

443,046

22 SmartLessons

• LEGAL FORMS: We include market-oriented legal forms

(e.g., limited liability companies, partnerships), but exclude business units in the central and local government sectors, associations, and unions. Due to the sub-optimal quality of the data, we also exclude sole proprietors3 (which are also excluded from the WBG ED data for Ukraine).

• OWNERSHIP: We exclude business units owned by the central or local government.

• ACTIVITIES: Production, construction, distributive trades,

and services are covered, but agriculture, public administration, non-market, and extraterritorial activities are not. This is mainly to comply with the current coverage of statistical business registrars in most Organisation for Economic Co-operation and Development (OECD) and European Union (EU) countries.4 Agriculture is typically excluded because of its specificities, which means it is difficult to aggregate “farms” and “enterprises” in a meaningful way.

2 Council Regulation (EEC) No 696/93 of 15 March 1993 on the statistical units for the observation and analysis of the production system in the Community. 3 According to results of a population survey conducted by IFC in April-May 2007, the number of active sole proprietors is about a quarter of the official data on registered sole proprietors. 4 Specifically, companies accounted for here are filtered by their main type of activity Industry, Construction, Trade, Public Catering and Hotels, and Transportation Services are included; Agriculture/Forestry, Public Administration, and extraterritorial activity are excluded. See also Eurostat-OECD Manual on Business Demography Statistics, OECD, p. 13. Avahttp://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-RA-07-010/ EN/KS-RA-07-010-EN.PDF.

Figure 2. A Closer Look: Which Businesses are Active?

Comparison with WBG Entepreneurship Database (thousands of entities) Total Totalentities entitiesininbusiness business registrar registrar as as of of Jan Jan 1, 1, 2007 2007

1,133 601

Total enterprises Total enterprises (as per WBG ED) (as per WBG ED) Total corporations(as per Total corporations (as per WBG ED) WBG ED) Total Total enterprises enterprises (as Ukraine) (asper perIFC IFC IC Ukraine BEE)

831 474 495

Registered

290 633 380

Of those in practice Active*

**Since does notnot provide datadata on active entities, the respective number was derived from the IFC Investment Climate Ukraine SinceWBG WBGEDED does provide on active entities, the respective number w as derived from IFC Ukraine BEE dataset. dataset. Source: State Statistics Com m ittee of Ukraine; WBG ED Source: State Statistics Committee of Ukraine; WBG ED

About 60 percent of over 1.1 million Ukrainian legal entities (not counting sole proprietors) satisfied this definition of enterprise in 2006. On the contrary, the dataset provided to WBG ED was not filtered to eliminate categories that are excluded from the Eurostat definition of an enterprise (see Table 1 for details). Business statistics regularly published by the Ukrainian State Statistical Committee do not make use of the above definition, either. The differences apply both to “enterprises” and to “corporations” as defined by the WBG ED questionnaire.

3) Sort out the active from the inactive. The figure of 494,730 corporations reported by the WBG ED corresponds to registered entities and corporations in Ukraine, irrespective of their being active or not (despite the fact that the questionnaire requires the data supplier to report only businesses considered active5—a requirement that was obviously overlooked by respondents). Given the heavy regulatory barriers to exit, however, and the absence of a systematic “cleanup” of the business registry’s database, the total number of registered companies is far higher than the total number of active companies. Data on active companies in Ukraine are not available directly from the business registrar, but nevertheless can be obtained from official statistics.6 We define here active businesses as those which pay taxes. This is a slight simplification, of course, but by and large acceptable.7 The data on active businesses 5 See footnote 4 to the questionnaire. 6 Data on active enterprises originate from matching the list of taxpayers provided by the State Tax Administration of Ukraine with the list of legal entities provided by Unified State Register of Enterprises and Organizations of Ukraine. The matching is done on a quarterly basis by the State Statistics Committee of Ukraine, and IFC Ukraine Investment Climate data were obtained directly from it. 7 While mostly not applicable in Ukraine, there might be several reservations tor this approach in other countries: (a) enterprises that do not file returns in a regular way due to the tax holidays provisions would not be in that list; (b) if there are thresholds below which enterprises should not file tax returns, these enterprises are out of the list; and (c) if enterprises did not perform any business activity in a specific year and did not file tax returns, but would go back into business using the same legal entity next year, such enterprises would not be in the “tax returns” list for a given year. Overall, using enterprises that pay taxes as a proxy for active enterprises is still the best solution available, and it is the one that the Ukraine State Statistics Committee has chosen.

thus come from the State Tax Administration and are matched by the State Statistics Agency on a quarterly basis with data from the state registrar.

4) Wrapping it up: Wrong picture, wrong conclusions, wrong policies ... The data reported to WBG ED significantly overstate enterprise density in Ukraine, making the country look “more developed” than it really is. Since statistics on registered entities in the country tend to be used by policymakers and the government, this false image of a country with an enterprise density “equivalent to the EU average” (once one includes sole proprietors, of which the vast majority are inactive!) is widespread. This means that, in-country and outside, the considerable problems that affect enterprise development and limit market entry, enterprise growth, and competition, are underestimated. So too is the rate of annual growth in entrepreneurship, meaning that this is faster than usually believed, but from a much lower base. What this discrepancy in data shows, on the other hand, is the effect of bad regulation. Since market exit in Ukraine is very difficult (according to the IFC-World Doing Business 2008 report, Ukraine ranks 140th out of 178 countries on barriers to closing a business), most companies that stop operating nevertheless remain registered. As such, the difference in data can also be treated as an indicator by itself as a backlog of inactive businesses.

DIFFERENT PICTURE, DEPENDING ON THE DATASET YOU USE Good policymaking would require data that adequately indicate not only the number of enterprises and how this compares with international averages, but also the survival rate of new SmartLessons 23

Figure 3. How You Count Influences Where You Stand… Number of corporations per 1,000 of active population (2005)

Argentina Congo, Rep. Chile Ukraine (WBG ED) Bosnia and Herzegovina Turkey Zambia Guatemala Tunisia Ukraine * Morocco Albania Ukraine **

14.5

8.4

7.8

Since WBGWBG ED doesED not include are not reflected here. they are not reflected Since doessole notproprietors, includethey sole proprietors, * here; active out of total originally reported to WBG ED ***active corporations using WBG ED definitions) active out of(recomputed total originally reported to WBG ED

** active corporations (recomputed using WBG ED definitions)

businesses, which is a key indicator. The State Statistics Committee of Ukraine does not publish data on survival rates, nor is it possible to compute this indicator from WBG ED (since it provides data only on registered entities, and a survival rate indicator is applicable only to active entities). Our estimates8 show that the one year survival rate for Ukraine was 91 percent and the two year survival rate was 81 percent. This is a rather high rate, and only further research would determine how much is due to the business cycle (Ukraine has enjoyed a growth rate of around seven percent for several years), and how much to a lack of competition, which actually can shield existing firms from those that do not make it over significant regulatory hurdles. Overall, the lack of statistics reflecting the true picture, and the difficulty in making meaningful international comparisons on such a basis, means that policy decisions risk being inadequate. In this case, decisive action would be needed to facilitate business entry, business survival…and business exit! Still, if one looks at the growth rate, it appears that previous business entry reforms (adopted partly thanks to IFC and World Bank Group support) have started to yield results… Published in June 2008. Second Prize Winner - Round 7

8 The estimates are based on the data obtained from State Statistics Committee of Ukraine at our special request and are computed according to the methodology used by Eurostat (Eurostat-OECD Manual, Op. cit., p.97). “The survival rate of newly born enterprises in a given reference period is the number of enterprises that were born in year xx-n and survived to year xx as a percentage of all enterprises born in year xx-n.”

24 SmartLessons

About the Authors Yuriy Kuzmyn is an Associate Operations Officer who joined the IFC Investment Climate Project in Ukraine in 2003, after having worked for the Parliament and several think tanks. Florentin Blanc is an Operations Officer who joined IFC in 2004 to lead the Tajikistan Small and Medium Enterprises Policy Project, after having managed nongovernmental organizations in Central Asia. In 2006, he transferred to the IFC Investment Climate Advisory Services Project in Ukraine.

Show Me the Money II: From Concept to Practice Sanda Liepina, Sanwaree Sethi, and Christopher Miller More than a year and a half has passed since IFC Advisory Services in Europe and Central Asia (ECA) introduced a standard methodology for assessing aggregate cost savings (ACS) for businesses resulting from IFC-supported Investment Climate (IC) reforms. Within the region, 13 regulatory reforms in six countries have been assessed with this methodology, showing an estimated $301 million in cost savings for the private sector, with an average impact of $29 for every dollar spent on these advisory projects. These results look impressive, but they also raise questions on the concept and application of the methodology: How do we know this is an adequate impact for the resources invested? What else needs to be done to refine the approach? Can these types of impact measures be applied as decision tools at the program level? On a global level, a review of project supervision reports from the current active Investment Climate Advisory Services portfolio reveals that 15 projects are reporting on the corporate-wide standard ACS indicator. Thus, another question emerges: What does it take to implement a consistent approach across regions?

BACKGROUND

LESSONS LEARNED

The ACS methodology was adapted from the extensive work done in the area of impact evaluation for regulatory reforms by various researchers in the European Union, the Organisation for Economic Co-operation and Development, and the United States, as well as analytical work conducted by the Investment Climate Advisory Services of the World Bank Group. The methodology assesses aspects of the business environment before and after the IFC-supported reforms are enacted by the government in order to quantify the changed costs for small and medium enterprises (SMEs) undertaking the given procedure. Two types of costs are considered:

1) Implementation: Simplicity and a conservative approach are key.

• Direct costs include the economic costs (labor or administrative costs) to an enterprise related to the regulatory procedure before and after the reform.

• Indirect (opportunity) costs include the impact on profitability

due to the productive use of time that would otherwise have been dedicated to completing the regulatory procedure. For example, if registration time is reduced, then the SME can begin operation and collect revenues earlier.

A summary of the methodology is available in the Annex.1 The following lessons learned highlight the key issues that were considered while operationalizing the impact evaluation methodology. 1 A more detailed version can be found in the SmartLesson “Show me the Money: Quantifying the Impact of Regulatory Simplication Projects,” published in June 2007 and available at: http://smartlessonsext.ifc.org/smartlessons/lesson.aspx?id=405

Success factors:

• Provide a simple, easy-to-use Excel template for the project teams. • Rely on conservative, data-supported approach focusing on direct impact.

After we completed the first “Show Me the Money” SmartLesson, we discovered that the conceptual framework was not sufficient to allow easy data collection of impact results on the ground. Individual projects operate in widely different environments, with varying priorities and resources. The project teams could do little with the formulas and the overall description of data points that were needed, as outlined in the methodology note. Explaining how every calculation has to be made to every team member was a daunting task. Therefore, the initial focus in 2007 was on turning the conceptual methodology into a practical, self-explanatory Excel-based tool which allows for the entry of very clear and predefined data points. This simplified Excel-based tool can be implemented at the project level in diverse environments with minimal support and training required. Once it was shown to work in the field, the regional monitoring and evaluation (M&E) team focused on SmartLessons 25

making certain the methodology was applied uniformly across projects and products in order to ensure consistent results. To gather input for the Excel-based template, public data are used whenever possible, supported by surveys and other credible sources.2 To increase the simplicity and reliability of the methodology, the template focuses only on immediate impacts that can be attributed to the regulation, quantified and supported with data. By avoiding attempts to measure secondary impacts, such as social benefits, effects on rate of formalization, etc., the resulting tool is very simple for projects to use with impact results that are easily verifiable and that can be aggregated across different projects. The downside to this approach is that the methodology cannot be applied to every type of reform and will collect only a portion of the overall impact achieved. Although various approaches to measuring some secondary benefits of regulatory change have been considered, thus far no standard solution has been found that can be rolled out across multiple projects. This is our key challenge going forward: how to expand the scope of what gets quantified while still maintaining the simplicity of the tool, which has been a key success factor so far. For the time being, the secondary benefits can still be captured through qualitative assessments. Implementation also involves a number of judgments about what to include in the impact calculation. For example, a common issue is how much involvement a project must have in a given regulatory reform in order to count and attribute its impact. The ECA region has maintained a conservative guideline that requires projects to demonstrate significant contribution to a regulatory change in order to count the impact. Significant in this case means direct and verifiable involvement in the design of the specific reform, as well as a close and sustained relationship with the government partner designing and implementing the reform. This has to be demonstrated via evidence of assistance provided in:

• drafting the required policy papers to agree on the reform • drafting the legislation enacting the reforms; and/or • designing the related administrative reforms at the agency level. These dimensions are critical for solid attribution of the impact to the IFC project. Impacts of reforms where IFC’s input can be questioned are not included. For example, the region has been tracking—but not including in the impact calculations—the reforms that have been implemented based on the general recommendations provided in policy papers or survey reports that the projects publish. Since 2005, these projects have contributed to amendments or revisions of a total of 53 regulations enacted by the governments, but we have quantified the impact of only 13 2 In most cases, publicly available data sources are sufficient to calculate the impact of reforms. These data sources include state statistics agencies, various government ministries and agencies, enterprise surveys, and Doing Business reports. Other sources of data that are used include focus groups, expert estimates, and targeted surveys conducted as part of IFC Investment Climate Advisory Services project.

26 SmartLessons

reforms that have met the criteria for significant contribution from IFC and that lend themselves to this type of quantification (see Lesson 2). Relying on easily accessed data sources, using a simple template, and maintaining a conservative approach of measuring only what can be supported by the data and is clearly attributable to IFC, have been key to creating the consistency that allows for aggregation and comparison of data across different projects and countries.

2) Consistency: Impact measurement starts with project design. Success factors:

• Incorporate the M&E template into project design. • Be aware of the limitations in quantifying impact for different regulatory reforms.

At project design stage, setting impact targets becomes an easier and more meaningful task with this measurement tool because it requires structured thinking about the potential impact of regulatory changes. This helps to structure projects around regulatory issues that are likely to yield the greatest impact. For example, a project design team evaluating various options for reforming business licensing can use the tool to conduct scenario testing on various regulatory reforms and determine which will have the greatest impact and affect the largest population. In addition, previous results quantified through the methodology can guide future targets. This data-driven, impact-oriented approach has also been welcomed by the donors funding the investment climate programs in the region, such as the Swiss State Secretariat for Economic Affairs (SECO), the UK Department for International Development (DFID), the Canadian International Development Agency (CIDA), the Swedish International Development Corporation Agency (SIDA), and the Agency for International Business and Cooperation (EVD). Finally, the ability to measure impact with this methodology is largely shaped by product and by the ease of quantifying various reforms. ECA experience has been that the current methodology is very effective for business operations and business entry or exit and likely for tax simplification3, but that it may be somewhat less effective for other products, such as legal reforms aimed at investor protection or substantive provisions of the tax code. The reason for this is that the nature of changes enacted—procedural changes and changes to the requirements that the business has to satisfy to engage in a certain activity—lend themselves to quanti3 Tax reform product in ECA is in the early stages of development and has yet to show its full potential. Preliminary estimates based on tax reform projects elsewhere suggest that tax simplification reforms have the potential to yield significant benefits for the private sector and affect essentially all businesses. World Bank Group experience from the late 1990s in Latvia showed tax simplification to be the area with largest impact by far (156 millions USD of 171.5 millions USD of total cost savings). FIAS Occasional Paper #18 by Sanda Liepina, Jacqueline Coolidge, and Lars Grava (November 2007). http://www.ifc.org/ifcext/fias.nsf/ Content/FIAS_OccasionalPapers

Table 1. Results by Countrya Country

Key Reforms

Reforms by Product

Impact (millions USD)

$ Impact/ $ Spent

$ Impact/ # Registered Businessesb

Azerbaijan

Registration

Entry/Exit

$8.3

47.5

Belarus

Registration

Entry/Exit

$21.5

86.3

Georgia

Mining Regulation

Operations

$1.3

1.6

Tajikistan

Inspections, Tax Administration

Operations

$11.2

79.8

Uzbekistan

Inspections, Permits, Registration, Liquidation, Tax Administration

Operations, Entry/Exit, Taxation

$47.1

95.1

Ukraine

Inspections, Permits

Operations

$212

70.1

For 13 ECA investment climate regulatory reforms for which impact was quantified with this methodology. b Including legal entities (companies), sole proprietors, and agricultural enterprises (farms). a

fication relatively easily. (All of these requirements take time and resources to comply. Once we know the time, we can express it in monetary values.) At the same time, improvements in legal provisions for minority shareholders or improvements in cost-deduction rules for tax purposes cannot be quantified this way. Quantifying these improvements would require a different set of data that is not as easily available in our countries of operation. The response on a product level should be to expand the methodology where feasible to capture the benefits of reforms and contribute to project design decisions, but at the same time to ensure that the cost savings indicator is not prioritized to a degree that would result in the exclusion of reforms that can’t be easily quantified.

We also looked at the impact by income group. Table 2 shows that while middle-income countries do very well in absolute dollar terms, when the same results are put into perspective, based on GDP and the number of registered entities, the trends and possible impact lessons that could be derived from the data look quite different.

• Normalize impact on an aggregate level.

Even with normalized data for countries within the region, we still do not know if the level of impact generated in this region is adequate, compared to what IFC could achieve with the same resources and products elsewhere. In order to do this, we need a standard impact measurement methodology across all regions. The current practice where each region assesses impact by its own methodology weakens the aggregate results and makes it more difficult to tell a compelling and credible story about the work being done by the business line and what impact we have on private-sector development globally. Discussions with different regions indicate that there is interest in pursuing this, assuming endorsement from the Investment Climate business line and the IFC Results Measurement Unit. To introduce a uniform approach across all regions to allow for meaningful aggregation and comparison of impact data, we need to address several issues:

• Standardization of impact calculation methodology IFC-wide

• Attribution: There is no standard for attribution among prod-

3) Evaluation: Interpreting the results is as important as collecting them. Success factors:

is a key next step.

ucts such as the public-private dialogue (PPD), the Doing Business reform advisory, and business operations. PPD projects in the Mekong region have addressed this issue in their impact assessment4 and some business operations projects have regional standards, but these are not unified across different regions.

Some of the impact data generated in ECA are shown in the following Table 1 and Table 2. Initially, we looked only at the total impact per country. From these results, it became apparent that we needed to normalize the impact numbers so that there could be meaningful comparison across countries. Larger economies produce larger absolute impacts simply due to the greater number of businesses affected by the changes. As a result it is difficult to compare $200 million in cost savings in Ukraine with $11 million in Tajikistan. To address the issue, additional metrics normalized for country size have been introduced. These include the cost savings as a percentage of the private-sector share of the gross domestic product (GDP) and the cost savings per registered business entity in the country.

Table 2. Results by Country Type Country $ Impact/ Type $ Spent

MICa

IDA

122

Impact as a % of Private Sector Share of GDP

Impact per Registered Entity

Ops

Entry/Exit Tax

Ops

Entry/ Exit

Tax

0.2%

0.02%

0.1%

0.06%

0.01%

MIC = Middle-income country b IDA = International Development Association 4 For example, see “Impact Assessment of the Public-Private Dialogue Initiatives in Cambodia, Lao PDR, Vietnam.”

SmartLessons 27

• Timeline: Some impact results are calculated over a multiyear

timeline while others are not, which leads to inconsistent reporting of impact. In ECA, the impact is calculated on a one-year horizon to maintain a consistently conservative approach; some regions include a three- or five-year outlook.

• Documentation: Very few projects provide supporting infor-

mation in the project supervision reports on the impact being counted, the nature of the reforms, or the methodology used in the calculation of the value.

As a result, while technically we do have aggregate data for the business line (Table 3), we cannot rely on it for meaningful analysis.

The strengths of this methodology are the ease of use at the project level and the ability to meaningfully aggregate the results across projects. The tradeoff for this simplicity is that the methodology provides a conservative estimate without evaluating most of the secondary impacts. There are several opportunities to continue to develop the methodology to address some of the current limitations, but the immediate need is for a standard Table 3. Aggregate Cost Savings by Region and Product Globallya # OF PROJECTS USING ACS INDICATOR

TOTAL VALUE (USD) OF REPORTED ACS

Sub-Saharan Africa

114,001,932

East Asia and Pacific

279,679,769

Eastern Europe and Central Asia

33,955,917

Latin America and the Caribbean

768,372

Central and South Asia

8,000

Total 15 428,413,990 Active portfolio, December 31, 2008. Data collected from Project Supervision Reports. Data from global projects reflected in regional portfolios to avoid double counting. The total sum of aggregate cost savings reported through PSRs as of FY09Q2 is $836.5 million, however when corrected for double counting with “world projects” and visible data entry mistakes, the aggregate results, shown below, fall to $428.4 million. a

Operations Entry/Exit Public-Private Dialogue Doing Business (DBRA)

28 SmartLessons

Published in June 2009. This paper is a follow-up to an earlier SmartLesson, entitled “Show Me the Money! Quantifying the Impact of Regulatory Simplification Projects,” written by Andrea Dall’Olio, Sanda Liepina, and Sanwaree Sethi, and published in June 2007. The SmartLesson is available at: http://smartlessonsext.ifc.org/smartlessons/lesson.aspx?id=405 First Prize Winner - Round 9

CONCLUSION

REGION

system to be implemented across all investment climate projects globally. Deciding on a common approach will increase the data available for analysis and the resources available to help develop the methodology.

About the Authors Sanda Liepina is a Senior Operations Manager and oversees IFC Advisory Services in the Eastern Europe and Central Asia (AS ECA) regional Investment Climate portfolio. Sanwaree Sethi is a Monitoring and Evaluation Specialist. She oversees results measurement for IFC’s Advisory Services in Eastern Europe and Central Asia. Christopher Miller joined IFC in 2008 as an Operations Officer for the Investment Climate portfolio in Eastern Europe and Central Asia.

ANNEX: Quantifying the Impact of Regulatory Simplification Projects By comparing specific aspects of the business environment before and after1 IFC-supported reforms are enacted by the government, it is possible to quantify the benefits accruing to the target population, i.e., the aggregate private-sector cost savings. The methodology described below can be used to assess the economic cost for businesses at four distinct stages along the reform cycle: Project establishes a baseline in order to identify need for regulatory change

Project identifies recommendations to be made and sets impact target

Once the reform is enacted, the project calculates ex-ante impact based on the reform specifics

Once the reform Is implemented, the project collects data a gain to verify the expost impact achieved

Detailed methodology It distinguishes between two types of costs on businesses: • Direct costs: direct impact on economic cost (e.g., labor or administrative costs) of an enterprise resulting from the reform of regulatory procedure. • Indirect (opportunity) costs: impact on revenues or costs, due to the different use of time formerly dedicated to administrative procedures. To the extent possible, all of the data below should be specific to the affected sample of firms. For example, if the reform affects small farmers differently than it does individual entrepreneurs, the calculations below should be made for each subsector of the economy and then summed at the end for a total impact. If the data are not available at the subsector level, then countrywide data can be used as a substitute.

Direct Costs

AC = (PO + PU) * N

Direct costs can be estimated at firm level, at a specific economic sector level, or for the small and medium enterprises (SME) sector as a whole, depending on the set of data available for each. The calculation of direct costs makes use of basic indicators and, in particular, leverages IFC experience with surveys in the region. Direct costs can be differentiated between administrative costs (AC) and labor costs (LC).

Administrative costs (AC) can be calculated for each procedure by multiplying the

PO = Cost of official payments related to the completing the given procedure (data available from official sources) PU = Cost of unofficial payments related to the completing the given procedure (data available from surveys or estimated as a % on top of the official costs) N = Number of times the given procedure is undertaken by a representative firm per year

cost of the procedure2 by the number of times the procedure is undertaken by a representative firm per year:

LC = DE * W * N

Labor costs (LC) can be calculated for each procedure by multiplying the cost of employees directly dedicated3 to the given procedure by the number of times the procedure is undertaken by a representative firm per year:

DE = Number of full-time employee working days dedicated to the given procedure W = Average daily employee wage4 N = Number of times the given procedure is undertaken by a representative firm per year

Total direct cost is calculated as the impact on net profits of administrative and labor costs (AC + LC). A variation in administrative and labor costs increases gross profits but, in turn, will imply higher profit tax (i.e., reducing the total impact). For this reason, in order to calculate direct costs effects, an estimated average profit tax rate5 will be needed. The average tax rate can be estimated for the overall economy or be differentiated according to the typology of businesses (i.e. individual entrepreneurs versus legal entities) or economic sectors. t = Average profit tax rate F = Number of firms affected by the given Total Direct Cost = (AC + LC) * (1 – t) * F procedure 1 IFC ECA understands that, under ideal circumstances, impact assessments 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., cases where it is virtually impossible to assess impacts using experimental methodology. 2 IFC investment climate surveys collect data on total costs of the procedures, which are represented by the sum of official and unofficial payments. 3 These estimates assume that the employee time can be disposed of or dedicated to other administrative activities (versus revenue-enhancing ones). 4 Including all social benefits costs. 5 Estimated taking into account, among other factors, the share of revenues officially reported.

SmartLessons 29

Indirect Costs Indirect costs require a more detailed approach to calculations and greater use of assumptions. Overall, we distinguish between two main categories of opportunity costs: those related to delay of entry (DE) and those resulting from temporary closure (TC) of a firm’s activities:

Delay of entry (DE) costs are those resulting from a new firm’s entrance to the market; i.e., costs from the deferral of launching profit-generating activities. Examples of these types of procedures are business registration, the first time a firm applies for a specific permit or license, or any other entry controls. The cost of this delay can then be measured as the proportion of profits “lost” due to delayed entry into the market; i.e. by multiplying the annual net profit for start-up companies by the proportion of working days spent on the given procedure:6

DE = P * (DF ÷ DS) P = Average annual net profit for start-up firms, for each industry or average for the specific sector affected by the given procedure DF = Average number of working days spent by firms in order to complete the given procedure DS = Average number of working days per year in the economy/sector7

Temporary closure (TC) costs result from suspension of a firm’s activity; i.e., the loss of productive activities for existing companies. Typical examples of procedures stopping economic activity are inspections, repeated licenses, repeated permits, and the suspension of activity due to the absence of licenses or permits. These costs are typically faced by existing companies and should be calculated only in cases where the closure or suspension was unjustified, or only for that subpopulation of firms that appealed and overturned the closure or suspension.8 The cost of this delay can be calculated by multiplying the average annual loss of a company whose activities are stopped by the proportion of working days that a company is stopped by the number of times the procedure is undertaken by a representative firm per year:

TC = L * (DC ÷ DS) * (1- t) * N L = Average annual losses for an active firm whose activity is stopped but which remains active, i.e. which retains all its production factors DC = Average number of working days a firm is closed due to the given procedure DS = Average number of working days per year in the economy/sector t = Average profit tax rate N = Number of times the given procedure is undertaken by a representative firm per year

Total Indirect Cost = (DE * F) + (TC * F) F = Number of firms affected by the given procedure

Total Costs If we sum the total direct and indirect costs from the baseline and compare them to the summed costs for our target ex-ante or ex-post calculations, we are able to calculate the one-off savings resulting from the passed legislation. In order to ensure conservative numbers, wherever applicable, data from the baseline year (number of firms affected, wage levels, etc.) are used in calculating impact.

6 Note that in the case of barriers to entry, there is no need to multiply by the number of times the given procedure is undertaken in a given year; it is assumed that it is undertaken at most once a year. 7 In order to be conservative, a 365-working day year can be assumed. 8 Please review Excel templates with calculations to see how this has been done; it can be achieved based on results of overturned cases of firm closure.

30 SmartLessons

Kenyan Licensing Reform Sets Scene for Better Collaboration within WBG Musabi Muteshi, Fred Zake, Lars Grava, Matilde Bordon, and Peter Ladegaard The World Bank Group’s (WBG) Kenya program on private sector development (PSD) and regulatory simplification from 2005 to the present was built around collaboration among its different units to provide quality technical assistance and a unified face to the client. The main feature of the collaboration was the flexibility to respond to the client’s demands and move the reform agenda forward, based on the comparative advantages of the World Bank Group’s institutions and staff members involved. The collaboration has gone from being rather informal and ad hoc in nature to today’s systematic cooperation and integration of programs through joint staff, cross-support, and intense coordination. This paper explores the factors that provided the foundation of that cooperation and its potential application in other WBG locations.

Licensing was the problem… The collaboration is rooted in an early identification of business licenses, which constituted a key constraint on investment climate in Kenya. Diagnostics from a World Bank (WB) Growth and Competitiveness report and an Administrative Barriers report from the Investment Climate Advisory Services of the World Bank Group report (funded though the multidonor FIAS platform) laid this out clearly in 2004 and 2005. The diagnostics found that the business licensing regime in Kenya was excessive, out of date, and inefficient. Many licenses had no legitimate purpose, and some were used only as a local revenue collection instrument. The large number of licenses required, their annual renewals, and the multiple inspections related to licensing created a serious impediment to private sector development and added to the cost of doing business in the country. This also created ample opportunities for petty corruption.

…and the guillotine was the solution. In response, the Government of Kenya recognized, in 2005, business licensing as a major regulatory constraint on the formal economy, business formalization, and investment. With staff from Investment Climate (IC) advisory services and the WB Africa Private Sector Development Department, and financial assistance from a Japan Policy and Human Resources Development Fund grant, the government decided to launch a “guillotine review” to reform, whereby all licenses that regulators could not justify as legal, efficient, and necessary on envi-

ronmental, safety, and health grounds would be eliminated by default. In parallel, the World Bank included the review and simplification of a number of licenses as a condition in the loan agreements under consideration. The results and approach of this reform are well documented in other papers and publications1 and are not the topic of this SmartLesson. In short, however, they included:

• Establishment of a Reform Committee led by a private sector

lawyer and operating under the joint authority of the Ministry of Finance and Ministry of Trade and Industry.

• The Reform Committee assembled Kenya’s first complete in-

ventory of licenses and fees. Ultimately, 1,325 licenses were identified—far more than originally expected.

• Over two years, the committee worked with more than 240 regu-

lators across the public sector to help them comply with the circular issued by the government, and brought additional expertise into the reform process by involving sector and other experts to carry out more detailed reviews of licenses in certain sectors.

• Recommendations of the committee for large-scale changes

were accepted by the government, and the process of legal implementation was underway. As of November 2008, around two-thirds of the 1,325 licenses have been either eliminated or streamlined.

1 See Jacobs, Ladegaard, Musau: Kenya’s Radical Licensing Reforms, 2005-2007: Design, Results, and Lessons Learned. Paper for the Africa Regional Consultative Conference “Creating Better Business Environments for Enterprise Development: African and Global Lessons for More Effective Donor Practices,” November 2007, Accra. Available from www.FIAS.net

SmartLessons 31

• Results from the licensing reform were a key contributor to

Kenya’s status as a top reformer in the IFC-World Bank Doing Business 2008 report.

Most important, perhaps, has been the fact that the successful business licensing reform has led the way for a multiyear, multiproduct World Bank Group project addressing broader regulatory reform challenges in Kenya. Even after the recent postelection crisis, licensing and regulatory reforms have remained on the government’s agenda. The new government, consistent with WBG recommendations, announced the development of a broad-based Regulatory Reform Strategy that will build skills for regulatory impact analysis and regulatory quality control, and, among other goals, attempt to reduce costs of government red tape a further 25 percent by 2010.

FLEXIBLE YET INCREASINGLY SYSTEMATIC COOPERATION BETWEEN WBG UNITS From the beginning in 2004–2005, the business licensing reform in Kenya has been supported by several WBG units, including the IFC Investment Climate Business Line and the World Bank Private Sector Finance Group (AFTP) and the Finance and Private Sector Development Group (AFTFP) in the Africa region. The division of responsibilities was not entirely defined in the first two years of the program. Rather than being a hindrance, this created opportunities for flexibility and mutual benefit. IFC’s leverage with key ministries was significantly enhanced through the systematic link to the World Bank. At the same time, the connection to the successful licensing reform offered the World Bank tangible progress on other business environment–related activities (e.g., the business environment component under the Micro, Small, and Medium Enterprise [MSME] Competitiveness Project). WB staff members in Nairobi and Washington, and the World Bank Country Director, joined IFC missions, introduced key government counterparts, and jointly managed to put the reform on the national agenda and include the licensing review in critical government plans: the Investment Climate Plan and the Anticorruption Plan. From 2005 to 2007, the World Bank had one staff based in Nairobi and one staff based in Washington working on private-sector–related projects and supporting business licensing reform in Kenya. The IC business line had a semi-permanent presence in Nairobi, close cooperation with the World Bank office, and a constant link to Washington to support the reforms in Kenya. As it became clear that the program was growing and support would be needed, two new positions were created in Nairobi—an IFC staff member, and a joint IFC/WB staff member. The joint staff position is funded jointly by IFC, through the multi-donor FIAS platform, and the World Bank, and reports to task team leaders and managers “on both sides.” Managers and task team leaders on both the WB and IFC side 32 SmartLessons

are in frequent contact to ensure coordination and information sharing between the closely related programs.

LESSONS LEARNED 1) There is no autopilot for reform: WBG country offices, in cooperation with the headquarters in Washington, need to be available to respond to changing circumstances and step in as needed. Regardless of the design and the institutional set-up supporting reform, successful implementation relies on strong and consistent political support as well as the constant consultation and availability of technical capacities to champion and drive reforms on a daily basis. Our government counterparts, identified as champions for private sector development reform projects, were instrumental in moving this agenda forward. In the initial stages, there was much resistance to reform from public bodies and regulators, who feared the reforms would reduce rent-seeking opportunities and reduce licensing revenues. This resistance was partly reduced by the fact that, as part of its thorough, transparent, and independent review, the Reform Committee actively invited information and explanations from the responsible bodies before reaching a decision. The committee utilized an extensive consultative process with stakeholders from the public and private sectors, including public hearings, which attracted much attention from the media. Special efforts were devoted to address the licenses that the private sector found particularly burdensome.

2) Clearly established channels and roles are essential for effective dialogue and collaboration. During the first two years of the project, collaboration took place informally, due to IFC and World Bank staff goodwill in cooperating and collaborating beyond their formal responsibilities. Now, in order to institutionalize these activities, a joint IFC/WB position in Nairobi has been appointed, indicating the integral nature of this cooperation. A new IFC staff member has also been recruited, working with IFC Nairobi, IFC Johannesburg, and IFC in Washington exclusively on the Kenya project. The joint IFC/WB employee works on licensing and other private sector development activities in Kenya. For example, she works very closely with donors in her role as chair of the Private Sector Development Donors Group and tracks important policy decisions and developments, while the IC advisory services staff member works with the private sector through his IFC contacts. Both organizations are now formally expected to share information in regular joint meetings; and, as a result, there is

greater “trust” between the staff of both organizations working in related areas. Clearly defined roles have avoided overlap, duplication, and confusion between WB and IFC staff members, and also for donors and clients. This effective collaboration has also been noted by government counterparts. Before this partnership, the government was receiving separate delegations and there was overlap in some interventions. The government counterparts now see the coordination and understand the World Bank Group roles in private sector development interventions.

3) Recognition of the strengths that each WBG partner brings improves collaboration and trust, and contributes to the success of the overall project objective. In Kenya, the comparative advantages of WB and IFC have been discussed over the past few years in meetings and training events. Project collaboration was based on the needs of the client and the comparative advantages and strengths of the institutions and persons involved. This collaboration allowed greater access to funds, expertise, and networks, within WBG and the Government of Kenya. Recently, in October 2008, there was a joint IFC/WB staff meeting in Nairobi to present the overall Investment Climate Advisory Services program. Staff of both WB and IFC pointed out that there was a lot of synergy with their activities.

4) Teamwork and cross-boundary collaboration improves solid, long-term partnerships with clients and donors.

representatives to Nairobi to share experiences. The joint team provided the forum and background for the discussions, but the participants used the forum to share their experiences and develop a network of practitioners. Most recently, the project team, with the presence of a new staff member located in the IFC offices, has begun to coordinate closely with related IFC and World Bank initiatives such as the IFC SME Solutions Center and Business Environment Component of the World Bank Group MSME Competitiveness Project. Published in January 2009. Second Prize Winner - WB-IFC Collaboration Competition (Round 8)

About the Authors Peter Ladegaard is the team task leader for the Kenya Licensing Reform Program, based in Washington, D.C. Matilde Bordon was based in Nairobi from 2004 to 2007 and a World Bank member of the Kenya Licensing Reform Team. She is currently a Regional Coordinator for the Investment Climate Advisory Services, based in Washington, D.C. Lars Grava is a member of the Kenya Licensing Reform Team, based in Washington, D.C. Fred Zake is a Nairobi-based member of the Kenya Licensing Reform Team. Musabi Muteshi (joint World Bank-IFC) is a member of the Kenya Licensing Reform Team, based in Nairobi.

The project team understood at the outset that regulatory reforms require a broad coalition of partners for sustainability: across government, at the subnational level, with the private sector, with IFC/WB, among development partners, and with other regional stakeholders. The project team: (1) encouraged the Ministry of Finance to assign new and enthusiastic officers to drive the regulatory reforms; (2) worked directly with the junior staff as well as with representatives of other bodies such as the Ministry of Trade and Industry, the Local Government Reform Program, the Nairobi City Council, and various regulators and business associations—all of whom were critical components in sustaining the reform momentum, even after the election crisis; and (3) maintained and strengthened its partnership with other donors, who have been eager to support and fund the project. In order to scale up and replicate the successes and lessons of the Kenya program, the project has undertaken a number of regional-based initiatives, such as initiating an East African Network of Reformers during 2008 and organizing a visit in 2007 by a Tanzanian delegation of government and private sector SmartLessons 33

Creating Opportunities for Women Entrepreneurs in Conflict-Affected Countries Carmen Niethammer, Mark Blackden, and Henriette von Kaltenborn-Stachau In many ways, women pay the socioeconomic price of conflict. Although destruction, displacement, and loss of lives and livelihoods affect men and women alike, conflict often leaves women to carry the double burden of economic and familial responsibility in the absence of men who are imprisoned, disabled, or dead. Access to reliable information is essential in a fast-changing environment defined by insecurity. Households typically face a multitude of decisions in conflict-affected countries to invest, to sell assets, to stay in rural areas or move to the city, or to leave camps and look for economic opportunities elsewhere. However, prevailing informal (and formal) networks are often maledominated—with men in key information-sharing positions during conflict, leaving women and female-headed households without a basis for informed decision-making and without the possibility of seizing emerging opportunities. Providing women with access to information and with entry points to formal and informal networks are crucial steps toward social and economic inclusion and rebuilding the economy. Reconstruction can be effective only if women are recognized as valuable economic participants rather than dismissed as a “vulnerable group.” Giving women a stake in the national reconstruction process by investing in their economic participation, including through entrepreneurship, is crucial for effective and sustainable development of the already fragile economies of conflict-affected societies.

During conflict, the necessity for women to earn a living contrasts with their limited access to resources such as finance and capital, and often results in an even greater concentration of women in the informal micro-enterprise sector. Women who can no longer rely on steady earnings from the male head of household during hardship often have no choice other than to try to make ends meet by engaging in informal micro-income–generating activities to contribute to household income. The success of female entrepreneurs is essential for post-conflict economic stabilization and revival; yet women entrepreneurs in conflict-affected societies often experience difficulty accessing finance. In 2006, IFC’s Gender Program (Gender Entrepreneurship Markets) was asked to help First Microfinance Bank of Afghanistan (FMBA) reach out to underserved segments of the market and promote women’s empowerment through increased access to financial services. The goal was to accelerate the growth of women in business while generating superior business outcomes for FMBA. Women in particular have proven to be excellent microfinance clients globally, and reaching out to women microfinance clients in Afghanistan was considered a business opportunity not to be lost.

LESSONS LEARNED 1) When working with financial institutions in post-conflict countries, seize the opportunity to promote women’s access to finance and help financial institutions bank on women entrepreneurs profitably. Example: Afghanistan 34 SmartLessons

Photo credit: Flikr user Richard Franco

Kamela Sediqi, a woman entrepreneur in Afghanistan, operated a tailoring business from home during the Taliban regime, when her brother and father were in exile. She has since started a business consultancy, instructing clients in business plan writing, financing, marketing and pricing. Her clients now include the United Nations.

More women had entered the labor force as a result of the conflict, which would lead to more opportunities to support women’s economic activity. There were also more female-headed households, with estimates of around 16 percent in Kabul and between four percent and 20 percent in three districts of Badakhshan. According to a 2005 World Bank report, 52 percent of women in female-headed households had been working “infrequently in Kabul and elsewhere, sewing, embroidering or washing clothes for others.” FMBA had a much higher average loan amount than its competitors, but bucking the norm, microfinance had the lowest percentage of women clients at 12 percent. Working in partnership with colleagues in financial markets, IFC’s gender team went to Afghanistan to develop a strategy for FMBA to improve outreach to women. FMBA then implemented a grouplending product targeted at women—and, after only one year, it was able to increase its women’s portfolio to 16 percent. In a recent progress report, the client was particularly proud to report not only that the women market segment was profitable, but that a significant percentage of their loans went to widows to whom FMBA can now provide an opportunity to progress and improve their standard of living.

2) Since many new women entrepreneurs enter the informal sector during and after conflict, this requires an early baseline assessment with a gender focus to help the government establish ways to formalize their participation in national reconstruction efforts. Example: Liberia

those barriers. One question tackled by the team was whether women and men running informal businesses faced similar or different obstacles to formalizing their business and whether women business owners had different needs. As a result, the team provided gender-specific questions that were included in the survey and undertook a gender analysis of the results. The gender analysis confirmed that women business owners in Liberia are much more likely than their male counterparts to own completely informal enterprises. This gap persists as the firms mature, and while it varies by region, the gap persists across the country. This informality gap may be impeding business growth, especially among women-owned firms, as completely informal businesses owned by women are less likely to have experienced increased employment over the past year than formal or partially formal firms. Fewer women than men said they are likely to take steps to become formal, and fewer have taken any steps toward formalization to date. Following the gender survey, the government realized the need to address unequal treatment of women and men by officials. Women business owners who have tried and failed to formalize, as well as formal or partially formal women business owners who have tried to obtain licenses or permits, were all significantly more likely than their male counterparts to report difficulties in dealing with government officials. In addition, an important role was identified for business associations as a natural conduit for dissemination of information about business formalization: women surveyed were found to be far less likely to be members of business associations, except in the central region of the country. These associations should be encouraged to extend memberships to women in their communities. Moreover, women were also found to be more avid users of savings clubs and susus than men. It was suggested that targeted outreach and communication to women business owners would bring important benefits.

In post-conflict Liberia, it was estimated that, in 2007, half of all enterprises were completely informal. Given the postconflict demographics, many households were likely to be surviving through the resourcefulness of women. In such an environment, formalizing a business is a critical step in facilitating business growth and economic development. Company formation is particularly important because the limited liability status of companies encourages risk-taking and formal structures facilitate access to resources. In early 2007, at the request of the government, the Investment Climate (IC) Advisory Services of the World Bank Group undertook a survey of barriers to enterprise formalization in Liberia with the intention of exploring ways to address

Photo Flickr user Carpet Blogger. Photocredit: credit: Flikr user Carpet Blogger SmartLessons 35

3) Promote training and business mentoring opportunities that reach women entrepreneurs, who are typically limited in their mobility and physical access to markets. Example: Iraq/Jordan In conflict areas, personal safety issues affect women’s ability to leave their house and/or business and restrict their mobility— especially at night. Moreover, deteriorating security situations restrict women’s access to formal networks. In Iraq, a frontier country where access is difficult, there was a high demand in 2006 for small and medium enterprise (SME) training, particularly for women SME owner/managers. Much of the current training was directed at the microentrepreneur level. Yet the policies of the interim coalition government to provide women with a quota of the contracts for reconstruction had spawned a number of women-owned SMEs, most of whom had not previously had access to entrepreneurship/management training.

Photocredit: Flickr Lakarae Photo credit: Flikr useruser Lakarae

4) Legal reform initiatives carried out after the end of conflict provide a unique opportunity to ensure that existing gender-discriminatory Realizing that it would initially be too risky and difficult to legislation is revised and that new legislation organize training workshops in Iraq, IFC Advisory Services in provides a level playing field for women. the Middle East and North Africa’s gender team looked for Example: Democratic Republic of Congo opportunities to train Iraqi women entrepreneurs in Amman, Jordan, while allowing for the additional costs of transport and security. The training was to be demand-driven and conducted in conjunction with the Iraqi International Chamber of Commerce and Industry and the Jordan Forum for Business and Professional Women. The objectives were: (1) to enhance local Iraqi women entrepreneurs’ competitiveness; (2) to link them to Jordanian women entrepreneurs and Iraqi entrepreneurs in the diaspora for knowledge-sharing and mentoring; and (3) to introduce Jordanian institutional practices to Iraqi women, notably on how they address businesswomen’s needs, for possible replication early on in the Iraq reconstruction process.

Using IFC’s Business Edge management training methodology, a three-day workshop on “Successful Marketing and Pricing Strategies” was designed to respond to women’s specific training needs. Similar Business Edge workshops had been held in other IFC frontier countries, including Afghanistan and Yemen. In addition to providing participants with bestpractice concepts, the workshop provided valuable exposure to the businesswomen’s membership organizations on how to serve as intermediaries for high-quality business training for their members. Based on this exposure, workshop participants established their own businesswomen’s association, the Iraqi Business Women Forum, to serve the needs of women SME owners/managers in Iraq. The forum’s first priority was to lobby for the launch of an on-line portal and SME e-learning dedicated to women SME owners/managers; this was particularly relevant in a conflict-affected environment, where women’s physical mobility is limited.

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Efficient business enabling environments are good for businesswomen and men, and the benefits are especially large for women. According to the IFC-World Bank 2008 Doing Business report, “countries with higher scores on the ease of doing business have larger shares of women in the ranks of both entrepreneurs and workers.” Giving investment climate advice to governments on how to ensure a level playing field for women and men is thus important from both a business and equity perspective. Systemic gender discrimination and exclusion from business practices are common features in many countries, whether conflict-affected or not. Typically, when it comes to changing legislation that treats businesswomen differently than men, laws in several domains (including personal status codes pertaining to women’s marital, property, and inheritance rights) are affected, which can make legislative reform cumbersome. Such issues can be addressed more easily when a post-conflict government is taking a fresh look at its legislation and is open to innovative ideas on how to improve and optimize legislative procedures and regulations. The end of conflict, and the fluidity of the situation, opens a window to address many societal imbalances. In 2006, at the request of IC advisory services colleagues supporting the Government of the Democratic Republic of Congo (DRC) in improving its investment climate, IFC’s gender team confirmed that laws and regulations do affect businesswomen differently than men. For example, in the DRC, where women run only 18 percent of the small businesses, discriminatory provisions in the Family Code require married women to obtain

marital authorization to go to court in a civil case, to buy and sell property, or to enter into any obligations, including starting a business. Banks generally require co-signature/approval of husbands if women are to obtain loans. The Family Code also affects the ability of all women to obtain employment because proof of marital status is required, and this is difficult in a context in which identification papers are largely unavailable. Neighboring Rwanda, by contrast, has no such regulations, and women in that country run more than 41 percent of the small businesses. In general, starting a business in the DRC is difficult, taking 13 procedures and 155 days, and costing as much as five times annual per capita income. But women face greater obstacles than men because of the marital authorization requirement, even if this requirement is rarely invoked in practice, as the difficult economic situation in the DRC and the high levels of male unemployment mean that men do not generally raise objections to their wives working or running businesses. However, it does appear that these provisions are among the obstacles women face in seeking access to finance; removing them, and thus closing a potential loophole, is therefore an important priority for women.

About the Authors Carmen Niethammer is a Program Officer in IFCâ&#x20AC;&#x2122;s gender team, where she coordinates and provides technical cross-support to gender and private sector development initiatives across the World Bank Group. Mark Blackden is a gender expert with over 25 years of operational experience in Africa. A specialist on gender and investment climate reform, he has collaborated on Gender and Growth Assessments in Uganda, Kenya, and Tanzania. Henriette von Kaltenborn-Stachau is the post-conflict specialist for the Communication for Governance & Accountability Program (CommGAP) at the World Bank.

Having identified legislation that directly discriminates against women, the World Bank Group team has integrated a gender focus into the investment reform advisory work program in the DRC. By supporting a rapid gender-focused review of the legal and regulatory obstacles facing business, it will help the government to act on gender-specific legal and regulatory issues through reform measures aimed at improving the business environment for women entrepreneurs. Since the DRC is planning a systematic overhaul of its legal and regulatory framework, this post-conflict environment provides an opportune moment to highlight how legislation can be improved to promote both businesswomen and men equally. Published in April 2008.

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Support Emergence of Home-Grown Policies by Putting Local Partners in the Drafting Seat Martin Norman In September 2007, the Government of Bangladesh requested that the Board of Investment draft an economic zones policy (EZ Policy). The policy was to cover the entire zone regime of Bangladesh, including export processing zones, industrial estates, and special economic zones, both public and private. Export processing zones had long been a key tool in Bangladesh for creating jobs and increasing exports. In addition, there were 67 industrial estates, at least one in each of Bangladesh’s 64 districts, which catered primarily to the domestic market. Both the eight export processing zones and the industrial estates had had mixed success.

Arrangements for combining best international practices with local knowledge: A home-grown hybrid approach to policy development When the government commissioned the EZ Policy, IFC’s Bangladesh Investment Climate Fund (BICF1) agreed to fund the drafting of the policy. In doing this, BICF could have contracted an international consulting company with worldwide expertise in drafting EZ policies in multiple countries to draft the ideal policy that would have incorporated the best international practices available, avoided common pitfalls in developing economic zones, and relied on the traditional wisdom of the best practitioners. This approach would have amounted to BICF saying to the government, “Here’s the policy. It’s based on international best practices—now implement it!”

in economic zones, provide the local company with extensive orientation on international best practices, and orchestrate a rigorous review process by stakeholders at all levels. Once the local company had completed the draft policy, BICF used both large consultative group sessions and smaller focus groups to get the input of stakeholders and incorporate the most relevant comments into the final policy statement. Finally, after the draft policy had been submitted to the government, BICF arranged for key experts, both local and international, to intervene directly with the Chief Advisor’s (equivalent to the Prime Minister’s) Office during the final government review process. This ensured that best practices continued to be communicated to the decision-makers even after the formal consultative process had finished.

In discussing this approach, BICF felt strongly that in Bangladesh, as in many other countries, the reaction of local stakeholders to receiving a policy drafted by a third-party consultant or donor organization for implementation would be one of resistance. Buy-in to a policy developed externally would be minimal, and implementation would be spotty at best. We decided to take a different approach by sponsoring a “home-grown” policy on economic zones—one developed by Bangladeshis for Bangladesh’s economic zones. The idea was that BICF would hire a local consulting company with expertise in drafting legislation and with some technical experience 1 BICF is a technical assistance program targeting a better operating environment for businesses, funded by the United Kingdom’s Department for International Development and the European Union.

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Large consultative group sessions on EZ policies.

The entire process took approximately eight months: three for drafting the policy, three for the consultative process, and two for the final review by the Chief Advisor’s Office.

LESSONS LEARNED Our approach and the steps taken proved to be extremely effective, but in retrospect the following lessons on what to do and what not to do were learned from both our advisory work helping the local consulting company draft the policy and our input into the consultative process.

1) The local consulting company needs to be in the drafter’s seat, both in truth and perception. BICF felt it important not to “strong-arm” the drafters into accepting BICF’s position on the policy; rather, BICF worked behind closed doors to ensure that each point of the policy received lengthy discussion, hashing through ideas and brainstorming with the drafters. Hours were also spent to ensure that the drafters had a thorough understanding of international best practices, such as complying with World Trade Organization agreements and internationally accepted social and environmental standards, and working toward a multimodal hybrid model for economic zone development. In addition, the following helped preserve both the perception and the reality of a home-grown policy:

• The EZ policy was always referred as the “home-grown

policy,” as opposed to the “World Bank Policy” or “IFC Policy.” This messaging was managed by BICF in such a way that the government, the local company, and all World Bank Group entities working in the country referred to it in this way.

Smaller focus groups to consult stakeholders.

grown policy, it is extremely important that your interventions and those of any international experts be minimal. Staying quiet when opinions expressed are far from correct requires a degree of self-restraint, but demonstrating your expert knowledge will “blow your cover,” and the more you speak, the more the policy will be identified by the country as the “World Bank Policy” rather than “our policy.”

2) The earlier stakeholders receive the policy for review before the consultative sessions, the better. In coordination with the local consulting company, the government convened the stakeholder consultation meetings, sent out the invitations, and distributed the policy. On several occasions, meetings were convened on very short notice (less than 48 hours in advance), and the policy was sometimes distributed less than a week before the consultative session. As a result, key stakeholders often arrived at the sessions unprepared (i.e., not having read the policy).

• BICF maintained a low profile. All media and other in- OUR ADVICE: The sooner the invitations and the draft polquiries on specific points of the policy were directed to the local consulting company drafting the policy.

• BICF found creative ways of remaining proactive

while playing a behind-the-scenes role. While BICF actively identified key stakeholder groups for consultation, it left the official invitations up to the local company and the government. It shared ideas with the local company as to how to organize consultative sessions, but all sessions were led by the consultants and the government, which also compiled and distributed stakeholder comments.

OUR ADVICE: Resist the temptation to intervene! You should be in attendance for all the sessions in order to gauge the general feeling about the policy and understand which aspects of the policy are of most concern. However, for a home-

icy can be sent out to stakeholders before the sessions—ideally at least a week beforehand—the better.

3) Large consultative sessions should seek to explain concepts, leverage the knowledge of the participants, and allow sufficient time for questions and answers. A total of five large stakeholder groups of 30-40 stakeholders each were assembled to obtain the collective opinion on the policy from all government organizations involved in the economic zone regime, as well as from private sector chambers of commerce and industry associations, individual large companies, and civil society and donor groups. Large consultative sessions require careful planning. Often we found that comments were solicited from stakeholders in the SmartLessons 39

consultative sessions before they understood all the concepts. The organizers of the sessions tried to get through all the points of the policy (more than 60) in too little time, and the sessions were too formal to foster dynamic discussion. Ideally, sessions should last about three hours and should be broken down more or less as follows:

• Explanation of concepts. The basic concepts should be pre-

sented in an initial session of from 15 to 30 minutes, depending on the complexity and nature of the policy area and the capacity of that particular group of stakeholders. In our case, as we noted with successive consultative sessions that participants lacked a basic understanding of the concepts, the local drafters of the policy began to dedicate the beginning of each session to a half-hour’s explanation of what an economic zone is and its importance to the economy.

• Review of policy statements. Organizers of the consultative

sessions should go over the basic provisions of the policy for about 30 minutes, and should focus on those articles of most interest for a particular stakeholder group. Much less effective in our case proved to be taking four or five policy statements at a time for comment, and thus working through the 60+ policy statements in about two hours. Rather, we found that only about 20 percent of the policy statements constituted 80 percent of the concerns of each individual stakeholder group. Focusing on the most important policy statements makes for a more dynamic discussion and allows stakeholders to concentrate only on those policy statements of greatest concern.

• Presentation and delivery of written comments. Some of

the stakeholders will have prepared written comments before the consultative session. Approximately 30 minutes should be set aside for the representatives of those institutions to present their written comments. A deadline for all additional written comments prepared after the consultative session should be clearly announced during each session.

• Open discussion. By far the lion’s share—approximately an hour or more as time permits—of the session should be dedicated to open discussion. This is what will get participants excited about the content of the policy, and passionate about the articles of the policy about which they have major concerns. OUR ADVICE: Plan the large consultative sessions carefully. Make sure at least the basic concepts are understood, but keep presentations short and discussions long.

4) Small focus groups of key stakeholders before the larger stakeholder sessions are the key to the success of the consultative process. Each of the large consultative sessions was preceded by a small focus group of six to eight of the most influential opinion leaders within each large group. 40 SmartLessons

These smaller focus groups were the key to the success of the consultative process. They generally took place a day or two before the large consultative sessions, and allowed BICF the opportunity to provide more direct inputs to participants in these groups and to take more of an active role in shaping opinion and imparting international best practices. Specifically, small focus groups provided BICF with an opportunity to do the following:

• Encourage the key opinion leaders to read the policy.

We were quite concerned to find out at the large consultative meetings that so few of the key opinion leaders had even read the policy. Meeting with them in a small group or individually a few days before the large consultative session, and encouraging them to read the policy before the large session, was key to a vibrant, participative consultative session.

• Point out key clauses and ask leading questions to stir up a passionate response to the policy. Much more effective than “preaching” about best practices and talking about our opinion was pointing out hot-button items that would be important to the stakeholders. This part was easy. All we had to do to get key opinion leaders passionate about the policy was to observe, “Do you realize that the policy will triple the work of everyone in your department?” or “I hope you realize that the price paid in private economic zones will be controlled by the government.”

• Encourage private sector stakeholders to overcome de-

featist attitudes toward advocacy. As private sector representatives became passionate about aspects of the policy, BICF was able to give them a vision for what advocacy efforts can achieve when the private sector speaks with one voice. Then we targeted the most passionate and influential of the stakeholders for additional one-on-one meetings for the purpose of converting them into long-term champions.

• Encourage these key stakeholders to put their comments in writing. This will increase the likelihood that their comments will be read and considered for the final policy.

OUR ADVICE: Invite key stakeholders to attend small focus groups before the large consultative sessions, and target them for subsequent one-on-one discussions designed to make them long-term champions.

5) Providing constant feedback to all stakeholders is of vital importance. During the consultative process, the local consulting company that had drafted the policy was in charge of gathering and compiling all comments and recommendations obtained during the consultative sessions by the various stakeholder groups. These comments were presented in a matrix by stakeholder group,

assembled in a single spiral-bound publication and distributed to all representatives on all the stakeholder lists. This was done in a timely fashion (within two weeks after the consultative session itself ) and was instrumental in enriching the dialogue during the sessions.

About the Author Martin Norman joined IFC’s Bangladesh Investment Climate Fund (BICF) in 2007 as Program Manager, Economic Zones. He began his career in Latin America, where he spent 10 years managing and marketing free trade zones.

OUR ADVICE: Compiling stakeholder comments and recommendations is tedious work, but don’t let it fall behind! As the stakeholders see that their comments have not only been heard but documented in writing, they will feel that their voice has been heard. This is crucial for buy-in, especially from those who will subsequently be implementing the policy.

6) Be proactive with media relations. Consider the role of the press. In this case, the government decided that it was not desirable to have the press involved in every twist and turn of the process. This is understandable, but BICF felt that the media would be curious about the process and would seek information where they could find it, even from individuals who were not wholly familiar with the policy. In keeping with the behind-the-scenes approach, the strategy we decided to pursue was to communicate targeted messages to key journalists on the policy and to explain the policy draft–consultation–approval process informally. Our existing relationships with the media allowed us to include these messages as part of our ongoing communications with them, and the informal nature of our contact presented no challenges to official government media relations. In this way, as the media received reports on the policy from the various sources that were involved, they were already familiar with the concepts and were able to filter the information they were receiving from a more informed standpoint. OUR ADVICE: Make sure your existing relationships with the media are good, and be proactive behind the scenes to control the messages about the policy.

CONCLUSION If the above-mentioned guidelines are followed, the country will end up with a good policy that has a greater likelihood for implementation. And at the end of the day, a good homegrown policy that is implemented properly is better than the “perfect policy” that sits on a shelf. Published in July 2008. Second Prize Winner - Round 8

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Stakeholder Engagement in Post-Conflict Countries: The Liberian Experience Nana Yaa Ofori-Atta In February 2006, the government of Liberia invited the World Bank Group to work with the country to implement a comprehensive multiyear advisory services program. The program is designed to support the growth of a vibrant domestic private sector in Liberia that can create employment, increase opportunities for growth, attract partners, and provide services for quality international investment. The private sector development program in post-conflict Liberia is being implemented by the Investment Climate Team for Africa on behalf of the World Bank Group. The team is managed by IFC and draws staff and resources from across the World Bank Group and development partners to help governments in Africa achieve successful reform. Underpinning the team’s approach in Liberia is a deliberate strategy to engage with the government and all other key stakeholders, including civil society, the media, and the private sector. In the case of Liberia, this is all the more important, given the fine balance of power between the ruling party and the opposition. (The opposition has more seats in parliament than the ruling party!) This SmartLesson is intended to share the approach used by the team in Africa to develop and implement a concerted stakeholder engagement effort.

CONTEXT In March 2008, following a public backlash, the government of Liberia was forced to withdraw from the Legislature draft proposals for a new Investment Law. The law was developed with the Investment Climate Team’s support, but at the time we underestimated the opposition’s power to block the legislation. Opponents of the draft Investment Law successfully focused public debate on one aspect of the draft law that called for the elimination of the 26 exclusive sectors of the economy commonly referred to as “Liberianization.” Given the country’s troubled history of economic exploitation, the old investment law had barred foreigners from investing in 26 sectors, in a bid to ensure local participation in the economy. In response, the government asked the Investment Climate Team for Africa for help in leading public consultation and dialogue on the draft law. The team helped set up the Liberia Better Business Forum (LBBF), a public-private dialogue mechanism where public and private sector champions meet regularly for structured dialogue on priority issues that impact the private sector’s ability to do business better in Liberia. The LBBF Secretariat receives funding and support from IFC and the World Bank. 42 SmartLessons

The objectives of the forum are:

• To enable the government to publicly provide a summary of the consultations it has held thus far and thereby demonstrate its willingness to listen as well as to address the key issues;

• To publicly position the LBBF as an effective mechanism for

informed and evidence-based debate on critical national issues; and

Representatives from the private and public sectors meet.

• To provide the government with an opportunity, based on the

good practice and key concerns of its constituents, to propose returning the draft Investment Law with compromise paragraphs to the Legislature for approval.

A major reason why the government of Liberia approached the World Bank Group to facilitate informed public dialogue on the new law was because the World Bank Group’s Investment Climate Team enjoyed strong credibility with stakeholders across Liberia’s economic and political spectrum. This was the result of a deliberate and concerted effort to build communications and stakeholder relations into the work of the team’s reform program. Reform communications were embedded in the program design through a clear stakeholder engagement strategy and the appointment of a dedicated Communications Specialist. Elements of this effort are described in some detail below.

SECRETS OF SUCCESSFUL STAKEHOLDER ENGAGEMENT IN CONFLICT-AFFECTED COUNTRIES 1) Conduct a communication needs assessment. This involves initial identification of key constituencies, their information needs, and the strategies that will support the building of awareness and consensus on the urgency, opportunities, benefits, and relevance of investment climate reforms. To help kick-start an informed public-private dialogue on Liberia’s Investment Law, one of the first actions of the Investment Climate Team was to support the government’s efforts to identify stakeholder information needs and develop appropriate responses. The team provided fact sheets and talking points summarizing the contents of the draft Investment Law, including a cost-benefit analysis of the draft law and the existing law to facilitate the government’s belated but coordinated outreach with the media, the private sector, academia, civil society, and other key constituencies in Liberia. During the consultations, it was clear that a majority of the constituents had no information on the draft Investment Law other than that provided by the reform opponents. Media reporting and public debate of the draft Investment Law changed considerably when the outreach began. Secondly, the team working with the LBBF engaged the services of a consultant to research good practice on investment laws. Opponents of the draft Investment Law had largely based their opposition to the elimination of ‘‘Liberianization” by citing examples of other countries. In addition, the LBBF is working with the government to coordinate advocacy and outreach activities to ensure sufficient public consultation on the proposed Investment Law. The

LBBF, working with the University of Liberia, is supporting the government by holding a public policy forum to disseminate the results of the research and lead further informed debate on the draft Investment Law. Key constituents of the investment climate reform program—academia, civil society, the media, the private sector, and development partners—will be invited to attend the forum. The event will be covered live by members of the Liberian Economic Journalists Association (LEJA), a formal association of the Press Union of Liberia, across the country in English, Liberian English, and other local languages. It will also be covered on the Internet to engage and inform the Liberian Diaspora and potential investors.

2) Identify mediums of information exchange in a country. In conflict-affected countries, traditional mass media—television, radio, and print—tend to be weak and fragile, reaching only the main cities and towns. Often it is necessary to undertake a comprehensive communications audit to identify other potential media and determine the media mix that will best support the stakeholder engagement process. The Investment Climate Team engaged an independent Liberian consultant to undertake a comprehensive stakeholder communications and stakeholder audit in November and December 2007. The objective was to identify key mediums of information exchange in the country, identify potential and current reform champions and challengers, and identify current and potential platforms for informed advocacy on investment climate reforms. The audit findings helped to establish the need to strengthen the capacity of the media to report and analyze business, economic, and financial news, in a relevant, accurate, and regular manner to local audiences. This led to the team’s support in the establishment of the Liberian Economic Journalists Association in order to provide dedicated programming and reporting on business/economic and financial journalism. It also enabled the team to identify opportunities for the private sector to sponsor programs that would air messages in support of reforms that promoted private sector development.

3) Identify current and potential champions of reform. A phased stakeholder mapping identified the key constituencies that have power, direct influence, and vested interests, and that could benefit or lose from investment climate reforms. To help manage the political economy, strategies were designed to engage the champions and challengers in academia, civil society, government, legislature, media, and the private sector, in the structured dialogue of the LBBF and in the wider reform communications program. SmartLessons 43

One of the challenges of setting up an effective public-private dialogue in a post-conflict country is the fact that private sector development and investment climate reforms are not seen as priorities—compared to other pressing national concerns such as resettlement and lack of infrastructure. Also, heightened social divisions can make it more difficult for the different interest groups to work together for the common good.

sage—WALKING WITH TWO LEGS—emphasized the symbiotic relationship between local and foreign investment. In all communications, the team stressed that the proposed reforms primarily aimed to strengthen the domestic private sector and create employment opportunities. Encouraging foreign investment was also important, as it would provide even more opportunities for growth and employment.

This was certainly the case in Liberia, and the team spent considerable time engaging the different stakeholders such as the government, opposition parties, academia, the private sector, and the media. To ensure the involvement of all these parties, the LBBF and the Investment Climate Team held a town hall meeting to which all stakeholders were invited. No formal invitations were issued. Instead, the team ran a week-long radio campaign inviting the public to participate in the town hall meeting. The campaign created momentum, raised awareness, and helped create the perception among stakeholders that the public-private dialogue was truly an open forum to which all Liberians could contribute. Furthermore, care was taken to ensure that all stakeholder groups were represented in the LBBF governance structures.

5) Network and build the capacity of the current and potential champions across society to encourage ownership, inform debate, and publicly advocate for reform.

4) Build local capacity to implement a multi-stakeholder communications strategy in support of the reform program. Successful stakeholder engagement depends on having adequate capacity on the ground. In conflict-affected situations, client governments and other reform champions often lack the necessary capacity and skills to design and implement multiaudience reform communications strategies. The World Bank Group can help address this weakness by building a stakeholder engagement and communications component into its country reform programs. In doing this, however, care should be exercised to clarify the role of the World Bank Group. This is critical, as there is always the risk that opponents of reform might accuse the World Bank Group of usurping the client country’s sovereignty. In Liberia, the Investment Climate Team hired and mentored local communications staff to provide quality input, local context, and support for the daily implementation of the stakeholder engagement strategy. The team also developed an information pack that clearly outlined the role of the World Bank Group, the government of Liberia, the private sector, and other stakeholders. This helped to ensure accurate branding of the project from the outset and to support the development of core and audience specific messaging. Another key element in successful stakeholder engagement is messaging. It is important to develop a core message that responds to the local political climate. In Liberia, the core mes44 SmartLessons

As the case of the Liberia Investment Law illustrates, informed public debate is important when implementing reform programs. In conflict-affected countries, it is also important that local reform champions are identified early on and empowered to voice their support. In Liberia, the Investment Climate Team provided support to key stakeholder groups such as the LBBF and LEJA. The team led training sessions on the fundamentals of business and financial journalism for LEJA. The objective was to support informed reporting of investment climate issues by the media. Further, the team structured agreements between LEJA and the LBBF for the private sector to sponsor dedicated business programs and news on radio, as well as in leading newspapers. LEJA’s relationship with the LBBF continues to grow, with private sector members of the forum providing resources for specialized training for LEJA, access to information to support background research, as well as on-the-record reporting on business/economic and financial issues. The partnership between the LBBF and LEJA has created opportunities and platforms for disseminating pro-reform messages and has enabled the LBBF to lead informed debate on politically challenging issues and the reform agenda.

6) Build local ownership of the reform agenda. This can provide momentum and help to manage expectations. It also provides a firewall for the government (and the World Bank Group as well) in tackling politically challenging reforms. Engaging local stakeholders in government and the private sector in the Investment Climate Team’s work in Liberia has helped to create a solid support base for the reform process. By working with and through partners such as the LBBF and LEJA, the team has been able to ensure a high profile for its work and encourage informed debate. One of the ways to build local ownership is to ensure that local champions, and not the World Bank Group, lead advocacy

and informed dialogue on the urgency, opportunity, benefits, and relevance of investment climate reforms. The World Bank Group can provide support to the local champions by strengthening messaging and building the capacity of the local champions to advocate for reforms. In Liberia, the Investment Climate Team has managed, through the LBBF, to create a strong local public-private forum that owns the reform process. Before any major events, the LBBF and the team hold focus group meetings to clarify key messages that need to be communicated. Published in June 2008. Second Prize Winner - Conflict-Affected Countries Competition (Round 7)

About the Author Nana Yaa Ofori-Atta is a Communications Specialist working with the Investment Climate Team for Africa, advising on stakeholder engagement and other reformrelated communications in Liberia and other programs in Africa.

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Changing the Minds of Skeptics: How Strategic Communications Can Build Momentum for Tax Reform Shaela Rahman How do you make tax reform palatable to a private sector that is very untrusting of the government? That’s one of the challenges the Yemen Tax Simplification project took on in working to streamline and modernize the country’s cumbersome tax system. In an unusual move for an IFC Advisory Services project, we made communications—including monitoring and evaluation (M&E) and analysis of stakeholder perceptions—a key component in this effort. Even without a large budget, the communications component of Phase I went a long way toward assessing perceptions of the existing tax system, engaging stakeholders, and neutralizing opposition early enough to begin building consensus and identifying local champions for more sustainable reform. The lessons enumerated below share the communications and stakeholder outreach that worked well to lay a foundation for Phase II. They also discuss how we might do some things differently next time.

BACKGROUND

• Introducing a small and medium enterprise (SME) tax system • Introducing a goods and services tax (GST)—as opposed to

The project, a joint initiative of the Investment Climate Department and IFC Advisory Services in the Middle East and North Africa, was launched in response to the Yemeni government’s request for assistance with tax reform, a central part of its broad reform plan. The 18-month Phase I, which ended in June 2009, focused on the groundwork—including process mapping, drafting of the Income Tax Law, a compliance cost survey, and so on, as well as preparation of a communications strategy—to support the work of Phase II, which just began in the 2010 fiscal year.

Project Overview Purpose: To improve Yemen’s business enabling environment by introducing a modern, efficient, and effective tax system that reduces the time and financial cost of complying with tax requirements. The ultimate objective is to broaden the tax base, encourage economic growth and investment, and combat corruption and tax evasion. Specific goals:

• Streamlining and automating the entire tax system • Making it more accessible—making the payment of taxes less cumbersome

• Basing taxes on self-assessment, to reduce avenues for corruption and build trust between the Tax Authority and taxpayers

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a sales tax, which has a cascading effect and leads to doublecounting

• Aligning the legal framework with best practice Points of resistance from the private sector:

• Objection to the tax rate as being too high • Past performance of the government in tax reform—promises, but little change

• Contentment with the status quo—blaming the government

for corruption, while continuing to bribe officials and evade taxes

LESSONS LEARNED 1) Engage opposing stakeholders in open dialogue. In Yemen, tensions ran high between the two main stakeholders. The Tax Authority welcomed the project, but the private sector was divided, with the overwhelming majority not supportive of the initiative. So our first move was to reach out to the private sector via the main business organizations—the Sanaa and Aden Chambers of Commerce and the Federation of Chambers.

Box 1. Importance of a Communications Strategy

and which ones were popularly patronized by different groups (such as businesses, students, government agencies, and so on).

Most World Bank Group investment climate advisory projects engage and communicate with stakeholders, but often not in a methodical way. Communications are often viewed as an add-on rather than as an integrated mechanism for proactively engaging stakeholders and applying communications best practices.

3) Involve the client in developing a communications strategy that can continue beyond the life of the project.

Lack of structure, strategy, and analytical rigor of stakeholder engagement and communications can expose the reform efforts to a high degree of risk. Well-designed and well-intentioned reforms can be derailed by a lack of political will, unforeseen opposition or unexpected adversaries, or by overlooking core constituencies critical to effecting enduring reform.

Strategic communications was a smart investment for our project because it provided a framework for engaging stakeholders early to address the risks and barriers to tax reform. We worked with the client to outline a clear and comprehensive stakeholderoutreach plan in the first few months, which we felt was critical, given the tenuous and potentially explosive relationship between the private sector and the government (see Box 1).

This is especially true where, as in the case of Yemen, you have tensions between the Tax Authority and the private sector on taxation rates, lack of information and transparency, corruption in the current system, and lack of dialogue or participation of the private sector in policymaking.

In March 2008, we held a series of stakeholder workshops jointly with the Tax Authority and the Chambers of Commerce in the key cities of Sanaa and Aden. These workshops introduced the project to a range of players, including the private sector, members of Parliament, tax auditors, and donors. (To encourage candid dialogue, we did not invite the press.) Events opened with keynote addresses from the leadership of both the Tax Authority and the Chambers of Commerce, setting a collaborative tone. Result: The workshops helped neutralize some private sector opposition and laid the foundation for open dialogue. They also helped us begin to understand the range of attitudes toward reform.

2) Partner with the press. Since we didn’t invite the press to the stakeholder workshops, we organized a separate informal lunch for select representatives, mainly from media sources considered to be unbiased. (Yemen has a lot of government-run media outlets, as well as others run by prominent private sector groups.) We introduced the project, explained its objectives, and then asked for advice on how to engage our target audiences effectively, given the political economy of Yemen. The media have excellent knowledge of the stakeholder landscape, including the conflicting agendas and motivations of the private sector and the government. Result: The media participants appreciated our efforts to engage them and to seek their input at an early stage, and they were eager to share insights. For example, they gave us a sense of the type of advertising previously done by the Tax Authority—primarily using state-run papers, which made it clear that taxpayers were not being widely reached. They also gave us an idea of the ownership of the different media outlets (state versus private)

The outreach plan went beyond simply putting together a communications campaign. It looked at the existing capacity, processes, and systems of the customer-services operation of the Tax Authority, and recommended several changes to ensure that this function would be carried out more effectively. Also key was keeping the client (both mid-level officials and the leadership) involved at every step of developing the strategy— and making it clear that the responsibility for implementing the strategy was with them, while assuring our support. We also provided training in media relations and communications to senior and mid-level tax officials in order to better equip them to work with the local media and to implement the recommendations of the strategy. Result: We got buy-in from within the Tax Authority, gained some strong champions and allies in customer services, and were able to place a stronger emphasis on sustainability beyond World Bank Group (WBG) involvement. The client contributed staff time, was satisfied with the content, and is currently working to implement some of our recommendations, particularly regarding the types of media to be used for outreach (private versus state-owned outlets).

4) Take the pulse of local participants. We wanted to know how the main stakeholder groups feel about the current system of taxation in Yemen. Are they supportive of the proposed reforms? What are the main issues and concerns? The stakeholder workshops provided a few answers to these questions, but we wanted more structured feedback. In particular, we wanted perceptions information that could feed into the design of a pilot communications campaign. In other words, we wanted a sounding board for the materials and ads we were developing. In December 2008, we arranged for a series of detailed interviews with small focus groups of stakeholders composed of seven businessmen representing medium and large firms, five small-scale entrepreneurs, and nine employees of the Tax AuSmartLessons 47

thority and intermediaries (tax consultants). We showed them the slogan—“Paying taxes helps build and develop the country”—and drafts of ads using such key terms as mutual trust, simplified procedures, and fairness. We asked what they liked or disliked, and invited suggestions for improvements.

Figure 1. Ad on the New Tax System, Published in Yemeni Newspapers

Result: They gave us some good feedback on the design of the campaign ads. For example, they thought the ads should be in classic Arabic and avoid the use of dialects. They asked that we emphasize the development link to taxes. And they liked the slogan. Caveat: Focus groups provide soft, anecdotal information that can yield helpful insights for the design of a campaign. But they are not scientific, and their results do not feed into a system for M&E of a project’s effectiveness (see Lesson 6 below).

5) For the campaign—the heart of the communications activity—incorporate stakeholder feedback and get the timing right. The taxpayer outreach campaign not only had to create awareness of the reform, but it also needed to impart messages that would resonate with the local market and address the concerns of taxpayers. So we used the stakeholder feedback from the focus groups and workshops to develop three overarching messages: “building trust,” “a simple and transparent new system,” and “taxes as a means of enhancing Yemen’s long-term growth and development.” We created themes and characters that the average taxpayer could identify with (see Figure 1) and used short, powerful slogans and simple language. The pilot campaign ran for one week in the cities of Sanaa and Aden. Based on our research, we used the most cost-effective and widely viewed media in Yemen, mainly in print form— full- and half-page ads in prominent national and business newspapers, billboards (150 in Sanaa and 50 in Aden), and 2,500 fliers distributed to businesses and chambers of commerce—as well as some radio ads. The campaign was deliberately short, since it was a pilot for a larger campaign in Phase II, and since a lot of the technical work on the reforms is still under way and we did not want to overadvertise but rather inform taxpayers that changes are coming. The timing and duration of the campaign also responded to local circumstances. Although the designs and materials were ready to go by March 2009, the Tax Authority suggested that launching a campaign on a topic as sensitive as tax reform so close to election time (April 2009) would interfere with the reelection campaign and fuel opposition attacks. So we launched the pilot campaign in August 2009, after all election-related concerns had died down. Result: The campaign pleased the leadership of the Tax Authority, who also appreciated our flexibility on the timing. Our 48 SmartLessons

The ads were published in Arabic. This example has been translated into English.

responsiveness on the timing also gives us more leverage to negotiate with the client to fund a greater proportion of the next, more comprehensive campaign that will run in Phase II.

6) Incorporate M&E into your communications plan. Advisory projects are increasingly incorporating sound M&E frameworks to gauge results, but often they do not encompass communications activities. In fact, apart from an output indicator that measures the number of media reports and appearances, the standardized Advisory Services M&E system includes no tools to assess communications results or changes in perceptions that can occur from communications efforts. Also, since communications activities typically have very limited budgets, the addition of robust M&E (requiring collection of data, surveys, and so on) can be a challenge. On the Yemen project, we had a budget for communications activities (about $50,000), which included M&E. Due to budgetary constraints, the evaluation of the Phase I test campaign—to provide an M&E baseline for the larger campaign planned in Phase II—was carried out by the public relations (PR) firm that ran the campaign. Typically, a project would hire an independent firm for M&E, but in our case it made sense for the firm that will execute the Phase II campaign to be involved in the analysis of what did or didn’t work. The PR firm distributed 600 questionnaires in Sanaa and Aden to a defined random sample consisting of educated people between the ages 15 and 65, of whom 85 percent were men and

Figure 2. Stakeholder Feedback Before and After the Campaign

75 percent were involved in tax matters directly or indirectly (e.g., businessmen, accountants, auditors, university students, and academics). The sample was not preselected for people who had seen the ads. Of the 600 questionnaires, we received responses from 509 people, not all of whom answered every question. Given the newness of incorporating an M&E element into the communications activities, this was a learning experience for us. For example, our initial information gathering—from the workshops and focus groups—yielded anecdotal insights rather than scientific data. This meant that, although the subsequent survey by the PR firm may provide baseline data for comparison at the end of Phase II, we had no real apples-to-apples data with which to evaluate the effectiveness of the Phase I test campaign. If you have the budget for it, a more scientific M&E approach at the outset will provide valuable baseline data from which to evaluate the early stages of your communications efforts—using the same survey before and after the campaign. Result: Nonetheless, the survey following the Phase I test campaign not only helped set up a baseline for a more comprehensive campaign in Phase II, but it also provided encouragement that we were on the right track in communicating the benefits of the new system. The September 2009 survey—which indicated that 54 percent of respondents thought the new tax system would indeed help build trust—compared quite favorably with our earlier evidence that showed very little confidence in the new system’s ability to build trust.

CONCLUSION Our objective was to support the success and sustainability of the reform effort, which meant our communications activities had to strike a balance between generating awareness for reform, changing perception and thus behavior, and building the capacity of the client, so that the reform is increasingly driven by local demand. Our Phase I work in Yemen—to understand and take targeted measures to neutralize private sector opposition and misconceptions on tax reform, shift perceptions favorably toward the proposed new system, and ensure that the client is fully involved and is making the decisions—gives us a solid foundation for the work of Phase II. Published November 2009. First Prize Winner - Round 10

About the Author Shaela Rahman is a strategic communications expert with the Strategy and Analysis unit of the Investment Climate Department. She leads the project’s communications component, with support from colleagues based in Sanaa and Cairo. Shaela co-authored the toolkit “Strategic Communications for Business Environment Reforms: A Guide to Stakeholder Engagement and Reform Promotion.”

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Art or Science? Measuring the Impact of Business Environment Reforms at the Subnational Level Margo Thomas, Cesar Cordova-Novion, and Ana Batic As the Western Balkan economies look toward integration into the European Union, each is striving to increase its competitiveness and improve its economic growth. Considerable momentum has been developing on investment climate (IC) reform. Since 2005, four countries—Albania, Croatia, Macedonia, and Serbia—have been recognized as Top-10 reformers by the global IFC-World Bank Doing Business report. However, there is still much work to be done. The overall Doing Business rankings for the countries in this region are in the third and fourth quartiles for 2009, showing plenty of room for improvement. Investors identified improvements in regulations affecting businesses as a key priority for upgrading the business enabling environment in the region (Figure 1). In this SmartLesson, we share our experience of adapting the Standard Cost Model (SCM) to review regulations and measure impact in supporting IC reforms at the subnational level in Bosnia and Herzegovina, Montenegro, and Serbia. We have adapted a relatively sophisticated tool and applied it to support IC reforms to: (1) measure the impact of the reforms in terms of cost savings for businesses; (2) help drive the reform agenda by enabling policymakers to build stakeholder support and target reforms recognizing that “what gets measured, gets done;” and (3) support our regional monitoring and evaluation framework. Figure 1. Business Constraints as Reported by Investors in Southeast Europe

NEW APPROACH FOR IC REFORM IN THE WESTERN BALKANS Since 1995, IFC has been providing investment climate advice in this region, assisting our clients by, among other things, introducing new tools to systematically address the impediments to doing business, reduce the cost of doing business, and improve the quality of regulations affecting business activities. We developed a series of national and subnational projects that introduced systemic reforms to: (1) clean up the stock of regulations affecting business start-up and operation, using primarily the guillotine review of regulations; and (2) improve the flow of regulations by implementing processes to maintain the quality and consistency of those affecting businesses by using the regulatory impact assessment tool. This approach is particularly important in the Balkans, where the stock of regulations and business formalities (administrative procedures, licenses, permits, and so on) consists of layers of regulations, some predating the Yugoslav Republic. Information on these regulations and administrative requirements is often not readily accessible. This situation increases business risk and the cost of compliance due to limited access to information, lack of transparency, uneven interpretation and application of the regulations, and discretionary authority. In particular, we adapted and applied the international Standard Cost Model, an integral pillar of the guillotine review of regulations, to the subnational level in several countries, including Bosnia and Herzegovina, Montenegro, and Serbia.1 This adaptation of the SCM, referred to as the Balkan SCM, is part of an integrated monitoring and evaluation (M&E) framework.2 Moreover, rather than apply this measurement simply as an internal or donor monitoring tool, we integrated it into the reform process and technology, providing for our clients an important metric for setting targets, establishing ac1 This model is also being applied in investment climate reform projects in several other regions, including Central Asia and Africa. 2 This M&E framework is developed in collaboration with the IFC Advisory Services Results Measurement Unit.

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WHAT DO WE MEASURE IN THE BALKAN SCM? The Balkan SCM goes beyond the international SCM practice of measuring the cost of information obligations4 in the following ways:

• To reflect the realities investors face in the field, it captures the

Andre Nijsen, reputedly the “father” of the SCM, explains the model to regional clients and staff (April 2009).

countability, and engaging with the business community and other stakeholders to implement and sustain this important reform agenda. We engaged international experts and clients during the process of adapting this model and held a regional SCM workshop in Podgorica in October 2008.3

actual direct costs borne by businesses in complying with the regulations, requirements, and administrative procedures imposed by public authorities. Therefore, we apply the concept of the business formality (see Box 1) as a basis for quantifying and monetizing the costs incurred by businesses. The cost of compliance with a formality includes not only administrative costs but also fees and waiting time.

Box 1. What are Business Formalities? All legal and informal requirements imposed by public authorities, including: 1. Information requirements (e.g., documents and forms);

WHAT IS THE STANDARD COST MODEL?

2. A dministrative procedures required by public authorities, including approvals, certifications, authorizations, concessions, and permits; and

First developed in the Netherlands and currently applied in most developed countries, the SCM is a method for determining the administrative burdens imposed on businesses by regulation. This activity-based measurement breaks down regulation into a range of manageable components that can be measured. The SCM does not focus on the policy objectives of each regulation, but rather measures only the administrative costs incurred by businesses in complying with regulations (highlighted in Figure 2). In adapting this tool, we simplified and minimized the detailed data requirements and categories of activities for the model, tailoring them to local administrative regulations and procedures.

3. Payments including stamp duties, taxes and fees.

Figure 2. The International SCM Methodology

• The Balkan SCM quantifies and monetizes the indirect costs

incurred by businesses in complying with business formalities. In developing and transition economies, the burden of waiting for authorities’ responses and other “red tape” is one of the most significant compliance costs of regulations. It opens huge opportunities for corruption and “speed money” and immobilizes capital that could have been invested elsewhere. Moreover, this cost is often disproportionately borne by small and medium enterprises, who are the majority of businesses operating at the local level and an important generator of growth for these economies. Since this is a significant burden on business, we adapted the SCM by monetizing5—albeit roughly and indirectly—an “opportunity cost” of investment income forgone while waiting for authorizations.

The Balkan SCM measures four key cost components:

• Submission time: monetization of the time invested in gathering information and preparing forms for submission

• Fees and stamps: duties required for each formality • Documentation: amount of expenditures required to acquire and prepare supporting documents (data requirements)

4 These are obligations arising from regulations to provide information and data to the public sector and third parties. 3 The second annual Regional BEE Reform Network Conference, Podgorica 2008. http://www.fias.net/ifcext/fias.nsf/Content/RegionalConferenceinSouthEastEuropeOctober2008.

5 The basic formula used to estimate the waiting time savings is: OS = DS •GPI •I, where OS is the opportunity saving, DS is the aggregate number of days saved in the regulatory reform process, GPI is the average gross investment (by small and medium enterprises) in the country in the past five years, and I is the daily interest rate.

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• Waiting time: time spent by a business applicant waiting to The data are validated through a rigorous process of review, receive (a) supporting documents to be attached to an application and (b) final responses from the relevant authority after submitting the formality.

It is important to note two key assumptions of the model: (1) All registered businesses comply fully with all formalities; and (2) costs related to corruption, including unofficial speed payments, cannot be reliably estimated or tracked for this model. Separate tools exist (outside of the SCM approach) for measuring the impact of corruption on compliance costs.

HOW IS THE BALKAN SCM USED? The Balkan SCM is used as part of a guillotine review of regulations, which systematically reviews the stock of business formalities to determine which ones should be eliminated or amended to increase transparency and consistency, and ultimately reduce the cost and risk of doing business. First, it is applied after the inventory of formalities is completed to measure the baseline costs incurred by businesses. In subsequent phases of the stock review, it is integrated into the registry of formalities to: (1) provide estimates of the changes in costs as a result of recommendations for reforms; (2) calculate the cost of formalities after the implementation and validation of the reforms; and (3) calculate the cost savings generated by the reforms.

LESSONS FROM THE BALKAN SCM Three sets of lessons are emerging from our use of the Balkan SCM to measure the impact of regulatory reforms at the local level about the “art” of adapting sophisticated tools to make them scaleable and replicable in challenging situations, the importance of measurement tools in building support and momentum for reforms, and in targeting reforms.

1) Using focus groups for data collection and validation improves flexibility and saves money. The baseline costs are compiled on the basis of information provided by regulators and public authorities, as well as the private sector. In addition, primary and secondary data are collected regarding:

• Official information on the costs, frequency, and coverage of formalities (from national, city, and municipal governments); and

• Economic and labor statistics (from national and subnational

official statistics departments) and quantitative and qualitative information on formalities, compliance costs, and time (from focus groups with selected businesses, business associations, citizens who are required to comply with the inventoried formalities, and intermediaries such as third-party service providers of professional and technical services to businesses).

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analysis, and confirmation by stakeholders and experts. Gathering reliable and accurate data is therefore critical for the successful application of the Balkan SCM. We have effectively used focus groups (with business owners, business associations, and intermediaries) to collect and validate data inputs for the Balkan SCM. Focus groups provide a cheaper and more flexible instrument for collecting and validating data, as compared to firm-level surveys, for example. This is particularly important at the subnational level, where firm-level surveys are expensive— in both cost and time—and where it is difficult to draw robust samples for municipalities through national-level surveys. In addition to the cost of large firm-level surveys, there is the issue of survey fatigue and low response rates when surveys are conducted too frequently. As noted by the Organisation for Economic Co-operation and Development (OECD), “Opinion surveys of businesses are, in particular, susceptible to the business cycle. Poor company performance may induce managers to respond to opinion surveys in a negative fashion.” However, putting together and facilitating focus groups constitute both a science and an art. Our initial efforts to conduct focus groups met with mixed results. We learned that extensive local networking and partnering with the local business associations were essential for building trust, increasing the number of participants, and improving the quality of the participation. Firms and entrepreneurs have to be assured that they will not be penalized for frank feedback, and they need to know what’s in it for them. In addition to data collection and validation, focus groups have been useful for “taking the temperature” of the business climate and proactively identifying emerging issues of concern for businesses, in a cost-effective way.

2) Build support for reforms: “What gets measured, gets done.” By incorporating the measurement of the costs associated with implementing or complying with business formalities into the reform process, we provide our clients with a language and metric for articulating the importance and scope of the reforms. This enables our champions and mayors to explain more concretely—not only to stakeholders but also to their public administration—how the burdens imposed on businesses by regulations limit investors’ productive capacities and resources for investment. This is an intuitive but powerful argument in localities where industries died off during the transition, and there are significant levels of unemployment and excess capacity. The mayor of Vranje, Serbia, explained this best during a recent conference in Belgrade when he said that by going through the process of reviewing the formalities and measuring the time and cost of compliance, city officials now understand in concrete monetary terms how reforms to formalities and business procedures can impact businesses and, ultimately, their deci-

Figure 3. Baseline Cost of Formalities and Ex-Post Annual Savings Generated

sions on where to invest. Mr. Azdejkovic, Mayor of the City of Krusevac, added that some of the most important benefits of this work are changing mindsets of officials, improved governance and accountability, and a shift to a more service-oriented culture as officials recognize the “costs” imposed by poor regulations and excessive requirements.

3) Target “high-value” formalities for reform. It is generally difficult to attribute changes in levels of employment or gross domestic product (GDP) directly to regulatory reforms. However, using the Balkan SCM, we can calculate the costs of the formalities and the savings generated by firms as a result of such reforms as reductions in fees or waiting time and streamlined procedures. Since the baseline provides a fairly rigorous estimate of the cost of complying with specific formalities, it is possible to target “high-value” formalities for reform. Despite the risk of bias, focusing on reforms with high opportunity costs (e.g., waiting time) and perhaps avoiding procedural reforms, is a potentially powerful tool for setting priorities and allocating resources to implement reforms in areas where there is potential for the greatest impact. We are using this more targeted approach based on an 80/20 rule—meaning that we focus the review and reforms on the 20 percent of the regulations that, according to international experience, account for roughly 80 percent of the administrative compliance costs. We are applying this approach in three municipalities in Montenegro as well as for the second round of municipalities in Bosnia and Herzegovina and Serbia. Our goal is to push for deeper reforms to improve governance and fiscal accountability by focusing the discussion on the importance of avoiding the use of regulations and fees as extra-budgetary mechanisms for financing the bureaucracy.

CONCLUSION We successfully adapted for the subnational level a relatively sophisticated tool that has been applied to drive the national-

level administrative simplification agenda in Western countries such as the Netherlands. To date, five municipalities in Bosnia and Herzegovina and Serbia have completed detailed inventories and reviews of more than 1,000 formalities and have implemented legal and operational changes in 90 percent of those formalities. Many of the amendments relate to reductions in the time required to comply with formalities and resolve requests for information and approvals or permits. Based on the reforms actually implemented and randomly verified, the estimated direct and indirect cost savings to firms is approximately $50 million annually. The “bang for the buck” ratio (of cost savings generated to project costs) is almost 50 to 1. We achieved this ratio by reducing the number and types of activities covered by the international SCM, applying the measurement to formalities (not just information obligations) with which firms are required to comply, and including the indirect costs of complying with the formalities, thereby focusing on the regulatory and compliance issues faced by the countries in the region. Where robust firm-level survey data were not available, we used alternative sources of data and focus groups. We successfully transferred to our clients the technology for the Balkan SCM, a relatively low-cost tool, and are building their capacity to continue applying this tool to review the impact of regulations affecting businesses. Finally, it should be noted that the Balkan SCM is just one of a combination of measurement tools that are being applied in the region to assess the impact of reforms. A preliminary comparison of the results from a firm-level survey, the Balkan SCM, and the subnational Doing Business Study in Bosnia and Herzegovina shows an encouraging trend in the convergence of the results produced by these tools. This analytical exercise is ongoing for Bosnia and Herzegovina and Serbia. Published in June 2009. Second Prize Winner - Round 9

About the Authors Margo Thomas is the Manager of the Investment Climate program in Southern Europe and is Regional Program Coordinator, Investment Climate Department. Cesar Cordova-Novion, Director of Jacobs and Associates, is an IFC consultant on regulatory reform in the region. He developed the Regulatory Reform Calculator, which was applied in Kenya. Ana Batic is an IFC consultant providing analytical support, training, and quality control for the application of the Balkan SCM.

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SmartLessons is an IFC/World Bank Group awards program to enable development practitioners to share lessons learned in advisory services and investment and financial operations. This SmartLessons brochure presents first-hand and straightforward project stories with pragmatic useful analysis, written by professionals for professionals. Through the prism of their own experienceâ&#x20AC;&#x201D;positive and negativeâ&#x20AC;&#x201D;these authors aim to capture practical insights and lessons that could help advance development-related operations for private sector-led growth across the globe. This brochure, a joint collaboration between SmartLessons and the Investment Climate Advisory Services of the World Bank Group, focuses on the topic of investment climate, one of the five pillars of advisory work undertaken by IFC. The other pillars include helping to increase the availability and affordability of financial services, particularly to micro, small, and medium enterprise clients; advising governments on private-sector participation in infrastructure and other public services; promoting the large-scale adoption of business models that are both profitable and good for the environment and social development; and offering corporate advice to existing and potential investment clients in the areas of corporate governance, building markets for small and medium enterprises, improving managerial capacity, and enhancing corporate social responsibility.