5.2.13. Assessing the Business Environment

Assessment Tools

An assessment of the BEE is an essential part of value chain analysis for value chain development projects. Similarly, for policy reform projects, the first step to selecting reforms is to determine whether and how the business enabling environment facilitates or hinders the performance of key value chains.

International ranking and benchmarking reports are often a good starting point for obtaining a snapshot or overview of a country's business climate. The most widely known report of this kind is the World Bank's Doing Business[1] series, first published in 2004. Since its inaugural issue, the series has been highly successful in helping to create transparency and regional competition by rating countries according to the impact of their regulatory frameworks on economic growth. Through surveys and consultations, the Doing Business team interviews local professionals to help determine the cost of doing business, in both time and money, for domestic small and medium-sized companies along 10 standard indicators of common business operations, such as starting a business, hiring and firing employees, employing workers, paying taxes, and closing a business. Other popular rankings and benchmarking reports exist with varying methodologies and countries of coverage, each with its benefits as well as its limitations. For more information, click here.

The BizCLIR assessment tool[2], developed under the USAID BizCLIR project[3], offers a data-rich assessment of a country's business environment to help governments and donors gain a comprehensive understanding of the barriers to private-sector growth. BizCLIR's methodology uses a 360-degree stakeholder assessment--involving numerous public- and private-sector actors--to analyze more than 1,000 indicators, which are categorized by the World Bank's Doing Business 10 topic areas. For each topic, four perspectives are addressed—legal framework, implementing institutions, supporting institutions and social dynamics. The BizCLIR diagnostic team usually consists of five to ten experts, each focused on a different topic area, who conduct desk and field research over 8-12 weeks. Field research usually culminates in a roundtable with stakeholders to present and discuss preliminary observations. The final report, called an Agenda for Action, provides more than 100 actionable recommendations for each of the 10 Doing Business topic areas as well as a summary list of top priorities. Since 2006, BizCLIR assessments have been conducted for over 20 countries.

The BizCLIR assessment tool is used most often by USAID missions and governments when designing economic growth or competitiveness programs in order to gain a deeper understanding of areas where high priority reforms are needed. Since the BizCLIR diagnostic does not look at value chain-level constraints, it is less helpful once projects move into the value chain selection and analysis stages of the project cycle. However, in 2008, the BizCLIR project pilot tested the application of its assessment tool methodology to a single sector analysis in Ghana. The final report, Commercial Legal and Institutional Reform in Ghana’s Agricultural Sector (AgCLIR)[4], uses the same analytical framework as BizCLIR to assess the state of the agribusiness environment in Ghana and provide actionable recommendations for reforms to the government and donor community.

In addition, the International Finance Corporation BEE Toolkits provide step-by-step guides to both diagnosing and facilitating business environment reforms.

Figure 1: Reform Selection Process: Example of a Shrimp Feedstock Import Constraint

Impact Removing constraint reduces feedstock cost by 50% Impact_Removing constraint reduces feedstock cost by 50%
Cost Will require parliamentary action - significant education, analysis of impact and advocacy involved Cost_Will require parliamentary action - significant education, analysis of impa
Time Parliament could pass it in one year Time_Parliament could pass it in one year
Difficulty

There is little current support outside of industry

No lead firms appear willing to champion this

Current licensee holds significant sway in parliament

 Difficulty_There is little current support outside of industry No lead firms ap
Summary

The negative and positives are roughly equal

There may be better opportunities in other reforms

  

Following the identification of necessary reforms, four criteria—impact, cost, time and difficulty—should be assessed together with the trade-offs between them (see Figure 1, right). The resolution of a particular policy constraint may be necessary to reach project objectives or maximize results in a value chain activity. However, before selecting the policy for reform, the feasibility of completing the implementation of the reform within the project cycle should be considered. For example, USAID's Competitiveness Impacts of Business Environment Reforms (CIBER) tool uses political and administrative ability checklists and an advocacy feasibility matrix to help gauge the potential of successful reform initiatives.

Some BEE constraints, such as property rights, may require a much longer timeframe to address—often 10-20 years. Furthermore, governments tend to avoid reform if benefits are not expected to materialize until they are already out of office. Therefore, reforms that can be quickly completed and produce benefits within a short period of time are more likely to receive government support. The World Bank has found that the benefits of reforms listed in the Doing Business framework often accrue 12-18 months after the reforms are completed. Conversely, beginning a reform agenda with difficult reforms such as land tenure or attacking corruption in the customs administration constitutes a high-risk strategy. By addressing simpler issues first—such as reducing the number of inspections—success and momentum can be created and credibility established, allowing for a transition to increasingly complex policy issues. The cost of a reform should be assessed carefully. Value chain analysis permits identification of complementary activities being carried out by other donors or projects that might be leveraged to reduce the cost and increase the effectiveness of a BEE intervention.

Footnotes

  1. ↑ World Bank's Doing Business Series
  2. ↑ BizCLIR Assessment Tool
  3. ↑ BizCLIR Project
  4. ↑ AgCLIR:Ghana

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