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2.2.5. Types of Approaches

"Top-Down" Approaches

Driving Systemic Reform: the Regulatory Guillotine in Moldova

In 2003, USAID's Support to Micro, Small, and Medium Enterprise Development (BIZPRO) project partnered with the government of Moldova (GOM) in support of national-level reform. Following a World Bank-sponsored presentation on the benefits of the "regulatory guillotine," the GOM became determined to drive systemic reform using this method. In 2004, BIZPRO and GOM efforts produced a white paper laying out the guillotine approach to reform in Moldova, and established a National Working Group, comprised of public and private sector actors, to serve as a technical forum and give stakeholders an anchor in the reform process. By December 2004, the Moldovan Parliament overwhelmingly approved the Law on Reviewing and Streamlining the Normative Regulatory Framework for Business Activity, also known as the Guillotine Law. This bold move enshrined Moldova's regulatory reform program into law. In 2005, the GOM completed its first regulatory guillotine, eliminating 12 percent of the unnecessary business regulations.[1]

Historically, many popular top-down approaches have focused on working with national-level ministries to identify and eliminate unnecessary or inefficient regulations and ensure efficient development and implementation of future regulations. One example, the Regulatory Guillotine, developed by Jacobs & Associates[2] and also known as a bulldozing or "weeding out" approach, aims to reduce the costs and risks of doing business in a country by rapidly and systematically eliminating unnecessary regulations. Working with government ministries and other stakeholders, the guillotine process passes the existing stock of regulations through three levels of review to evaluate them against certain criteria such as legality, necessity and business-friendliness, quickly eliminating those that are not well-justified.

Another top-down approach is the regulatory impact analysis or assessment (RIA)--a decision-making tool designed to help systematically assess and communicate social and economic costs and benefits of new or existing regulations. Key features of an RIA [3] are:

  • A brief, clear introduction that explains the proposed regulation and what the regulation intends to address
  • An explanation and quantification of benefits expected to arise from the proposed regulation, including the main benefits to those affected as well as indirect benefits
  • An assessment of the likely costs, including the main direct costs likely to fall on businesses, government, the environment and consumers, as well as policy compliance costs and indirect costs
  • A clear bottom line on the amount of the net benefits

While the RIA mainly started in Organization for Economic Cooperation and Development (OECD) countries, and historically has been applied in more advanced economies, there is growing interest by practitioners and governments in exploring how this tool could be applied in developing countries to improve regulatory quality and enable better economic governance. Some experts suggest that the basic elements of the RIA framework do not need significant adaptation, but practitioners should change the way the framework is applied[4]. Some developing countries have already moved towards incorporating RIA into their policy-making process. In Uganda,RIA is required for all policy and regulatory proposals[5].

"Bottom-Up" Approaches

While top-down approaches can certainly play an important role in improving the business environment in a country, currently there is growing interest in exploring ways to employ a "bottom-up" approach to reform by looking at the business environment from the perspective of producers, wholesalers, retailers and other value chain actors. Interest in this approach arose from the growing realization that high-level reforms at the national level do not always address what is most important to small and medium-sized businesses. Even when there is significant reform at the national level, implementation at the local level can be inconsistent. Using the value chain as a framework for prioritizing and advocating for reform is an effective way to complement traditional "top-down" reform activities, such as the Regulatory Guillotine and RIA. “Bottom-up” business environment reform activities use a value chain lens to emphasize provincial and local, as well as national, level reforms to improve those aspects of the regulatory environment that most adversely affect enterprises in a particular value chain. The Competitiveness Impacts of Business Environment Reforms (CIBER) is one example of a bottom-up approach that engages value chain stakeholders in identifying and prioritizing value chain-specific business environment constraints.

Subnational and Regional Approaches

Sometimes it may be difficult to categorize an approach as uniquely "top-down" or "bottom-up" because elements from both approaches are incorporated into the reform initiative. Examples of some subnational and regional approaches for business environment reform illustrate how rankings and benchmarking reports, public-private dialogue and participation, and local advocacy can intersect to shape an effective strategy for improving the BEE.

  • In Morocco, USAID's Improving the Business Climate in Morocco (IBCM) project[6] joined forces with the World Bank to publish the first Doing Business in Morocco report, which assessed the business environment in eight Moroccan cities along four indicators--starting a business, registering property, dealing with licenses, and enforcing contracts. The study revealed that several cities surpassed Casablanca (the site of data collection for the national Doing Business ranking) in their ease of doing business. Moreover, some cities were shocked to see how poor their business climates ranked in comparison to that of their peers'. In response, Tangiers, which ranked last, set up a working group to champion reforms to address the registering property indicator, and the number of days to transfer a property title was soon reduced from 82 days to less than a week. Similarly, Agadir used its first place ranking in the regional Doing Business report to further promote the city to domestic and internation investors as an attractive location to do business in Morocco.
  • Vietnam’s Provincial Competitiveness Index (PCI)[7] was developed by the Vietnam Chamber of Commerce and USAID's Industry and the Vietnam Competitiveness Initiative (VNCI). The PCI is an analysis of survey data collected from the Vietnamese private sector and statistical or hard data combined into ten subindices: entry costs, access to land, transparency and access to information, time costs of regulatory compliance, informal charges, state sector bias, proactivity of provincial leadership, private sector development policies, labor training and legal institutions. These subindices are then aggregated into the overall PCI using a procedure that assigns weights to each according to their importance in shaping economic performance (investments, profitability and firm registrations), based on an econometric analysis. Provinces are then ranked against each other. Since 2006, the PCI has covered all 64 provinces, and the approach has remained stable—which allows for comparisons over time. Vietnam is somewhat unique with respect to available economic data by region (province). Where such data are not available, the approach needs to be adjusted; in these cases, it may not always be possible to disentangle the effects of the business environment, as measured in the PCI, from other factors.
  • USAID's Agribusiness Market and Support Activity (AMARTA) project emphasized an "inside-out" perspective--taking the perspectives of value chain stakeholders when trying to identify enabling environment weaknesses affecting value chain competitiveness. Initial survey results highlighted the fact that many of the issues should be addressed at the local government level, but a lack of agribusiness organizations such as farmer cooperatives or industry associations meant that there was no one to hold local government officials accountable for better regulations and policies. In response, the project launched Regional Agribusiness Competitiveness Alliances (RACAs) to serve as mechanisms for public-private dialogue on areas that affect the competitiveness of agribusiness value chains, fostering policy advocacy and serving a watchdog role.

Resources

Footnotes

  1. Gallagher, Dennis. Paths to Regulatory Reform: Moldova. Breaking the Rules that Bind
  2. Jacobs & Associates
  3. ↑ Regulatory Impact Assessment and Cost-Benefit Analysis in Uganda
  4. RIA: Developing its Potential for Use in Developing Countries; 2003
  5. Introducing Regulatory Impact Assessment (RIA) in Developing Countries: The Case of Uganda
  6. ↑ USAID Improving the Business Climate in Morocco Project website
  7. PCI Vietnam website