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2.2.7. Lessons Learned in BEE Reform

Introduction

As experience with business enabling environment reform programs grows, a better understanding is emerging of what practices and approaches lead to successful reform. Stock-taking efforts have been conducted recently by USAID, IFC and the Donor Committee for Enterprise Development:

  • USAID's Policy Lessons Learned: A Review of Economic Growth Related Policy Reform Activities in Developing Countries[1] reviews experience gained from creating and executing programs focused on designing, implementing and assessing economic development-related policy reforms and strengthening the organizations engaged in policy work. It is intended as a practical guide for development professionals with operational responsibilities for policy reform.
  • The IFC's Reforming the Investment Climate: Lessons for Practioners[2] seeks to address issues surrounding the management of reforms, such as prioritizing and sequencing reforms, overcoming opposition from interest groups, and creating institutional mechanisms to drive, monitor and sustain reform. This paper addresses these issues through an analysis of the literature and the findings of more than 25 case studies commissioned by the World Development Report 2005 team and by the Foreign Investment Advisory Service (FIAS) of the World Bank Group.
  • The Donor Committee for Enterprise Development's Supporting Business Environment Reforms[3] provides practical guidance to development agencies to improve their support for business environment reforms in developing and transition countries, which aim at economic growth, job creation, poverty reduction and gender equality. It provides generally applicable, practical guidance for development staff in the design, implementation and monitoring of their programs. While there are many contested issues (a selection of the most significant being highlighted in the text) as well as a great deal of trial and error in the field of business environment reform, this guidance attempts to provide good principles and practices based on lessons learned.

Lessons Learned

Reforms should be part of an overall BEE strategy. Discrete reforms should build into a larger strategy for a sustainable process of reform. A coherent strategy designed to strengthen the competitiveness of a sector or of the economy as a whole is essential to avoid falling into the trap of providing one-off ad hoc solutions that do nothing to ease the process of addressing additional or subsequent constraints. BEE initiatives should build the dialogue, advocacy, trust and momentum necessary to accelerate the removal of policy constraints and engage in the broader reform process.

Information is critical to effective dialogue. Without quantifiable information about the impact of a BEE constraint, a business or group of businesses is just one of countless others complaining about the actions of the government. By addressing reform through a value chain lens, the specific impact of policies can be identified in terms such as the volume of exports forfeited or market share lost to imported products. Such data allows for a more compelling dialogue with the relevant authorities.

Government and private-sector ownership is key. Champions are needed within the government and among businesses within the value chain for reforms to succeed and policies to be enforced and monitored over time. The role of donors is not to advocate, but rather to support the advocacy process in an even-handed way, ensuring transparency and the flow of information. A critical part of government ownership is ensuring that the government receives public recognition and credit for its role in successful reforms.

Local or regional implementation of the existing legal framework may be more important than the reform of national policies. In Vietnam the myriad steps, requirements, days and visits needed to register a business vary enormously among different provinces, despite the existence of a national legal framework. This illustrates two important issues: 1) implementation of the law matters and 2) what happens at the municipal level is more relevant to how businesses operate than decisions and actions taken at the national level. An exclusive focus on the national government misses an enormous opportunity to directly address BEE constraints. Local governments determine transaction costs and the incentives for businesses to formalize. Their support of or hostility to business affects business relationships and upgrading decisions—key factors in the competitiveness of a value chain.

Changing incentives can have a powerful effect on behavior. Reforming laws is often insufficient to improve the BEE since it does not change the incentives for poor government behavior. In one Egypt business registration project, corruption was an issue and embedded resistance to reform seemed prohibitive. The project made the registration process transparent and stipulated that if the business registry completed the process within the target number of days the registry employees would receive 50 percent of the registration fee. The employees now had an incentive to keep the process moving and the new transparent systems allowed bottlenecks to be identified. In instances such as this, changing the incentives within an institution can be more effective than changing the law.

A successful reform strategy involves building private sector and local government capacity to engage with each other. Effective engagement between the government and the private sector (including small and informal enterprises) requires training and support for both sides. Private-sector advocacy capacity can be built through studies on specific BEE issues, funding for advocacy initiatives, and the establishment of links between value chain businesses and institutions that can support reform. Similarly, local government skills can be strengthened through training and the facilitation of dia-logue between local government agencies and private-sector associations or representatives. Consultation on a particular issue can provide the forum for the organic development of public-private dialogue.

BEE support structures are key to success. For the reform process to be sustainable, support structures must be developed. Value chain stakeholders may need to be linked to specialist service providers such as think-tanks and universities. The media should be encouraged to report on BEE issues and assisted in understanding policy constraints and the positive impact of reform.

Quick successes generate opportunities for more success. The key lesson in implementing a BEE strategy is to start with reforms that can be rapidly implemented and will quickly demonstrate impact. Successful reform in one area generally opens up opportunities for interventions in other parts of the enabling environment. Conversely, stagnation and lack of success will restrict possibilities. Quick successes demonstrate the feasibility and potential benefits of reform, and generate support for broader reforms.

Case Studies

One-Stop Shop for Business Registration in Azerbaijan:[4] Before 2008 entrepreneurs looking to start a business in Azerbaijan had to register at 5 different agencies, complete 15 procedures and file 33 documents. This process took more than two months. But in late 2007 Azerbaijan launched a new company registration system—developed in just 60 days. As of 1 January 2008 an entrepreneur can be ready to do business much faster—by submitting seven documents and completing six procedures at the new, one-stop shop State Business Registry. Since January 2008, 3,465 limited liability companies have been registered at 14 different State Business Registries across the country. The electronic registry is linked to one-stop shop secondary agencies, including the State Social Protection Fund and the State Statistics Committee.

Modernizing Property Registration in Honduras:[5] Honduras’s property registry system was obsolete. Its 24 national registries were in dire need of staff and technology. Registration was carried out by hand in books. The “personal folio” system recorded the name of the owner and a brief description of the property but did not link the owner to the location. This system therefore created instability in the real estate market since the same property could be registered two or more times by different owners, leading to painful litigation. Citizens also distrusted the registry because of its inefficiency—registering immovable property took 1–2 years. In 2002 only 37 percent of properties in the capital city, Tegucigalpa, were registered. The system was ripe for reform. Today, land administration reform and, especially, a new property registration system, have increased confidence and introduced higher standards for efficiency and security. The modernization slashed the time to register a property transfer from an average of 18 months to 15 days.

Speeding Up Trade in Pakistan:[6] A fiscal crisis in 2001 prompted the reform of the Central Bureau of Revenue (CBR), the umbrella organization for Pakistan customs. In a departure from the past, the team tasked with the reform of the CBR viewed customs not merely as a revenue generation agency, but as an integral part of economic development. Flagging corruption, it identified serious problems in business processes and organization, human resources and information management. By focusing first on short-term "quick win" reforms, and by involving staff in the reform process and assuring them of job security, initial resistance was overcome. As a result of these reforms, trade is now easier in Pakistan, with customs clearance at the Karachi international container terminal dropping from 10 days in 2004 to 4 hours in 2007. Customs revenues are also up, from 115 billion rupees to 138 billion, despite a reduction in tariffs.

Land Reform in Ghana:[7] Since independence the citizens of Ghana have dealt with a dysfunctional land administration system with two overlapping systems: the inefficient state land bureaucracy and customary tenure. Long and expensive procedures taking up to five years and involving six different agencies discouraged many from going through state institutions to register their land, instead keeping their land issues within clans or tribes—unrecorded, but simpler, cheaper and aligned with traditional practices. The Lands, Forestry and Mines Ministry’s Land Administration Program cut the time to register property to 34 days. Achieving this was not easy: Interagency competition and deteriorating land tenure security added to the complexity of the task, which was already difficult because of local reliance on customary law.

Resources

Additional case studies can be found here.

Footnotes

  1. Policy Lessons Learned: A Review of Economic Growth Related Policy Reform Activities in Developing Countries
  2. Reforming the Investment Climate: Lessons for Practioners
  3. Supporting Business Environment Reforms
  4. One-Stop Shop for Business Registration in Azerbaijan
  5. Modernizing Property Registration in Honduras
  6. Speeding Up Trade in Pakistan
  7. Land Reform in Ghana