Presentation on Administrative Barriers Advisory Services (PPT, 259KB)

Background 

Virtually every “emerging market” country has liberalized its economy to some extent in recent years.  To varying degrees, attention has been focused on areas such as: 

• creating a more stable macroeconomic environment;
• liberalization of controls on foreign exchange transactions;
• trade liberalization;
• rationalizing tax structures;
• liberalizing investment laws and restrictions;
• actively promoting foreign investment and exports. 

Despite these and other improvements, the formal investment response in many countries that have been competing fiercely for new investment has been disappointing. As a result, skepticism over the effectiveness of economic liberalization is becoming more widespread; particularly as many senior level officials believe that the reform process has been largely completed.

In countries which have addressed many obvious constraints to private investment and exports, significant deterrents often still remain.  In particular, countries with a long history of government intervention and administrative direction in economic decisions typically have complex, overlapping controls beyond those easily identified as constraints on investment. The maintenance of overly complex registration procedures, combined with lack of institutional capacity, often translates into a situation where these mere procedural tasks become major obstacles to investment. These difficulties can only be overcome by extraordinary payments or long delays, and become a serious deterrent to potential investors who may have made a preliminary decision to commit to a country. This situation, all too common in emerging markets, has raised the need for more comprehensive reform efforts, combined with radical overhauls of how government agencies operate.   

Similarly, in countries which have taken steps to liberalize trade and promote exports, there still persist obstacles at an operational level for firms.  Ending import licensing, liberalizing foreign exchange, and reducing tariffs are all necessary steps to improving the policy environment for exports.  Their impact can be easily blunted, however, by cumbersome procedures for duty-free importation, the persistence of second-tier licensing requirements, ineffective Customs and VAT administration, etc. 

At an implementation level, Government officials are often still distrustful of private businessmen.  Alternatively, they are simply viewed as a source of supplemental income generation.  Both motivations can mean the persistence of otherwise lower-level irritants to business formation and operation, often elevating them to the point of constraints in an overall investment climate which remains only partially reformed.  These factors can be particularly negative for foreign investors who may not be politically connected, operate under strict internal corporate guidelines, or who do not have local partners to take care of a multitude of procedural obstacles and associated payments.  Accordingly, countries may lose the "good" foreign investors they all attempt to attract.FIAS has carried out studies of administrative barriers to investment in over 30 countries over the past several years. A standard “Admin. Barriers Project” examined all the steps an investor had to go through in order to start up a new business, plus several of the most routine interactions between a business and government agencies during normal business operations, as follows:

• Start-up Procedures: (e.g., registration and licensing)
• Locating Procedures: (access to premises, construction permits, and utilities)
• Operating Procedures and reporting requirements, (e.g., tax, inspections)

The reports include a detailed description of each of the procedures (as an investment guide); an analysis including the problems experienced by investors, inter-regional and international comparisons, and the strengths and weaknesses of the current procedures. The report also contains many detailed recommendations for improvement.   Self-Assessment tools

FIAS is now moving in the direction of a “self-assessment” approach to reviewing administrative barriers to investment in client countries.  Under this approach, a counterpart team in the Government will utilize FIAS-developed templates to collect the basic “institutional ” information on administrative procedures for business establishment and operation in the country, following the existing norms and regulations.  The outputs from the self-assessment will be analyzed in conjunction with the outputs of a business survey of administrative costs in order to identify specific areas that require more in depth review and analysis along the lines of a more traditional admin. barriers study. The use of the self-assessment approach will also provide a mechanism for effective capacity building by involving government counterparts in the initial analysis and providing training for continued monitoring of the investment environment.

In this approach, FIAS will collaborate closely with an inter-agency committee of local counterparts throughout the project.  The nominal head of the committee should usually be a Deputy Prime Minister, but he may appoint a specific individual to be in charge of the day-to-day activities of the counterpart team.  There should also be high-level representatives of  two or three other relevant ministries or agencies. The active counterparts should be a team of committed and knowledgeable individuals who are willing, with the commitment and support of the Government, to get the templates filled out and to take on the significant task of monitoring changes in the business and regulatory environment in the country.  The initial tasks of this committee would be to conduct the “self-assessment” of the administrative barriers and to collaborate with FIAS in conducting the more in-depth review of the areas identified through the self-assessment and the cost survey.  This role would then be translated into a continuing policy and procedure review and change advocacy role. It is expected that the members of this team will be charged with identifying issues and problems in the business environment and taking steps to propose policy changes and implementing appropriate reforms on an ongoing basis.

The Project

The project will consist of four distinct components, in three phases:

• Phase 1: Identifying the problem areas, analysis and recommendations:
  a. Self-assessment: (verification of status of Government’s on-going reform program for investment and template of administrative procedures to be filled out by government counterparts)
  b. Survey of regulatory and administrative costs (survey of the business community to be administered by professional surveyors)
  c. Study of the administrative barriers to investment and the preparation of an investment guide, focusing on specific issues identified by the previous components (including international experts)
• Phase 2: Prioritization of recommendations and preparation of Action Plan
  d. Dialog between the government and business community to prioritize among the recommendations of the Admin. Barriers Study and to develop an Action Plan.
• Phase 3: Implementation of agreed reforms
  e. Government reviews, adopts, and implements reforms agreed in Action Plan.  FIAS and other international donors provide technical assistance to support as needed.
• Phase 4: Monitoring of impact of reforms
  f. Repeat of government templates and business survey to assess progress, identify reforms that have been successful from those that have been less successful (and therefore may need a new strategy) and to identify new priorities for reform.

The objectives of the administrative barriers study (self-assessment and detailed study) are to provide:

• A Roadmap of administrative procedures.  The preparation of an Investor’s Guide or “roadmap” based on detailed identification and documentation of current procedures for the formal establishment and operation of businesses.
• A policy and regulatory review.  The outputs of the self-assessment templates and the survey of regulatory and administrative costs will be used to identify problem areas (e.g., areas that cause complaint among investors; areas that seem significantly more costly or time-consuming than in other countries, etc.). The analysis will be carried out by international experts, who will also make recommendations for improvement, to be included in the Study of Administrative Barriers to Investment.
• An agenda for dialog between the public and private sectors on administrative reforms with a public-private sector consultative mechanisms to bring together the two principal stakeholders.  These discussions should establish which reforms are highest-priority from the private sector’s point of view; which are feasible from the Government’s point of view, and concrete proposals for implementation.
• Monitoring and Evaluation: Both the self-assessment and the business survey will form the baseline against which agreed reforms (as contained in the Action Plan) will be evaluated. They should be repeated at intervals (e.g., once per year) to assess progress, to identify which reforms are on track and which aren’t on track, and to adjust the reform strategy accordingly (possible future project not included in budget below).
• Capacity building.  The project will include a strong capacity building component, aimed at developing the institutional capacity for an ongoing review of the business environment and assigning the responsibility for follow-up and policy recommendations to an appropriately-mandated entity, with the full support of the Government and stakeholders in the public and private sectors. 

Methodology
The study will examine key administrative procedures, including the following:

• Start-up Procedures: General approvals, permits, and licenses required by the business registration authority, central bank, immigration services, fiscal authority, and regional or municipal governments, plus a sample of sectoral business licenses;
• Locating Procedures: Key aspects of site development including land allocation, building permits, utility provision, and environmental standards;
• Operational Procedures and reporting requirements, the bulk of which are related to labor issues, transport, tax, import/export procedures, foreign exchange procedures, labor relations, product certification and government inspections.

The self assessment templates will be based on the legally required steps that investors have to go through to become legally operational, and to fulfill basic operating requirements such as paying taxes and getting products certified. These include:

• The institutions that the businesses must visit (e.g., the Registration Chamber),
• the information requirements they must present (including pre-requisite approvals, etc.),
• office hours,
• the duration of time to process the application, and
• the cost of all official fees.

In addition, for purposes of longer term monitoring, the templates should include, for each agency:

• the volume of transactions (e.g., number of new company registrations),
• the average processing speed (total elapsed time from the date an application is received until it is completed);
• number of line staff,
• number of appeals,
• outcome of appeals, etc.

All official application forms should be collected and attached the template for each agency, wherever it is relevant. The templates will be used to prepare a formal description of all official procedures for investment and key reporting requirements during normal business operations.

The Administrative and Regulatory Costs Survey (already used successfully in several countries) is intended to:

• Provide feedback from enterprises on the constraints faced by the private sector in the country.
• Assess the types and magnitude of costs and time requirements imposed on private enterprises by administrative and regulatory procedures, and to pinpoint areas of excess or unnecessary cost or delays that might benefit from reform or streamlining.
•  Establish baseline indicators which can both:
  • Be compared with international benchmarks, and
  • track changes in the business environment in the country over time to assess the impact of market-oriented reforms at the firm level.

The survey will need to be tailored to the specifics of each country’s business environment. (See “core” survey instrument, attached; additional modules can be added as appropriate). 
The combination of the self-assessment and detailed review will include the tasks outlined below.

Phase 1: Identification of Investment Procedures and Administrative Barriers to Investment, Analysis and Recommendations

Task 1:  The FIAS team will visit the country to meet with the local counterparts and a focus group of business representatives (roughly 12 – 15 businesses representing a cross-section of the business community) to agree on the final form of the verification exercise for the government’s reform program, the cost-survey instrument and self-assessment templates of administrative procedures, and the techniques for administering them.

Task 2: Identify all the necessary steps required for the business establishment process and for the operation of an enterprise.  The local counterparts, assisted by FIAS, will map out in procedural order all the individual steps needed to legally establish and operate a business.  This analysis will cite all the steps which must be satisfied to obtain the following:

• immigration and expatriate visas, work permits, and residence permits;
  • investment approval (if any) and other preliminary authorizations;
• business/company registration;
• tax registration;
• required registrations with statistical offices, social  security/pension, central bank, etc.;
• local and municipal business licenses;
• sectoral business licenses (from line ministries);
• registration of intellectual property (trademarks, etc.)
• access to land and land titles or long-term leases, and registration of title/lease;
• construction and building permits;
• environmental permits and approvals;
• utility hook-ups (including telephone, water, sewerage, heat, and electricity);
• formalities required after firms begin operations, typically including
  • paying taxes,
  • import/export procedures,
  • foreign exchange procedures
  • hiring/firing procedures for labor,
  • transport requirements
  • product certification and
  • government inspections.

 
Task 3: Carry out the survey of businesses of the cost of administrative and regulatory procedures.   The survey project team would consist of a FIAS or Bank staff member responsible for the survey, local counterparts, and a local contractor heading a team of surveyors and data entry personnel. At least 500 firms would be interviewed by local surveyors on a face-to-face basis, using a questionnaire tailored to the relevant procedures in each country. The sample should be representative of the business community, but may be a stratified random sample to ensure adequate coverage of key sectors and/or ownership forms (e.g., FDI). Alternatively it may be possible to interview “intermediaries”, e.g., lawyers, accountants, real estate brokers, customs brokers who help businesses complete most administrative procedures.

Task 4: Identify the number of days required to complete each stage of the investment process.  To the greatest extent possible, the local counterparts will create flow charts of the investment procedures.  Typically, this will serve as a demonstration of the labyrinthine nature of the process.  By disaggregating the process into separate components, it will be possible to identify precisely which procedural requirements currently pose as the most critical bottlenecks.  Time requirements cited by agencies will be compared with the findings of the administrative cost survey with FIAS assistance.

Task 5:  Detail the costs of each step of the process.  The local counterparts will calculate the cost of each form, permit, and approval to provide an estimate of the entry cost of becoming legally established.  This aspect is particularly important for smaller, informal businesses with little money to set aside for formalization.  The data collected from the templates will be compared with the findings of the administrative cost survey with FIAS assistance. In particular, where informal payments are common, the team will also make note of this.

Task 6:  Collect copies of all applications and forms which must be completed as part of the investment process.  In this manner, many of the difficulties faced by business people in dealing with the multitude of steps will be experienced first-hand.  Compiling copies of all the needed paperwork as part of the investment process will enable a determination of the overall complexity of the process. This will ultimately permit the elimination of redundancy and the simplification of applications.      

Task 7:  Compare Local Performance with Best International Practices. On the basis of the information gathered in Tasks 1 – 6, the FIAS team will return to the country to meet with the local counterparts and the business focus group to discuss the findings.  This group will specify 5 – 10 problem areas identified by businesses and/or government agencies, including significant discrepancies between time and cost requirements for key procedures as reported respectively by the relevant government agencies in the templates and by businesses who participated in the survey. As a way to assist agencies in establishing benchmarks, local performance standards will be compared with those prevailing in other transition economies.  These will be defined as appropriate in terms of time delays, cost, and quality of services.

Task 8:  Preparation of Draft Report.  A draft report including a description of all the procedures and requirements, an analysis of the constraints posed, the reasons they exist (i.e. the purpose for imposing them), and recommendations for their resolution will be prepared and submitted.  Annexes will include copies of required forms, as appropriate.
Phase II: Prioritization of recommendations and preparation of Action Plan 

Task 9.  Present findings to public and private sectors.  Following circulation of the draft report, a workshop will be held with public and private sector officials (including the business focus group, other interested members of the business community, and representatives of the agencies covered by the admin. barriers study), to discuss the findings, and hopefully to reach consensus on how to proceed with reforms.  In particular, feedback from stakeholders will be needed in order to help prioritize the impediments identified in the draft report, both in terms of urgency (which impediments represent the most severe bottlenecks) and the degree to which they are already being addressed by the Government and other experts.  The seminar should also identify or clarify responsibilities within the Government for the implementation of reforms.  The output of the seminars will be the formation of a Public Sector/Private Sector Advisory Group, who would be responsible for developing an “Action Plan”, indicating priorities (e.g., 5 – 6 areas to concentrate reform efforts over the coming year) and allocating responsibilities, including:

• what reforms will be undertaken,
• who will be responsible for implementing them,
• when they should be completed, and
• how they should be assessed. 

This Action Plan will be produced by the counterpart team with assistance from FIAS as necessary. 

Task 10: The public/private Advisory Group, having established priorities during the workshop (Task 9) will have 2 – 3 months to develop a full Action Plan. For each of the 5 – 6 priority areas, the group will appoint technical subgroups, each composed of 3 – 4 technocrats from the relevant agencies, plus 3 - 4 knowledgeable and interested private sector representatives to work out detailed proposals. These in turn will be reviewed by the larger Advisory Group before the final Action Plan is agreed and sent to the Government for approval and adoption. 

Phase III: Implementation

Once the Government has reviewed, approved, and adopted the Action Plan, it must be implemented, often with assistance from various donors, possibly including FIAS. This often includes more detailed investigation into specific problem areas to develop more detailed recommendations.  Also, the administrative barriers report must be finalized based on the feedback received on the draft report.

Task 11: Investigation of identified problem areas. On the basis of the agreed problem areas (Task 7), a FIAS team including international experts will visit the country to investigate the problem areas in greater depth. This work will include in-depth interviews with technocrats from the relevant agencies as well as representatives of the business community and knowledgeable service providers (e.g., real estate agents in the case of problems with access to land; private auditors in the case of problems with tax administration, etc.) This analysis will focus on why the procedures were designed as they were, how businesses experience them, and how they can be improved.

Task 12: Preparation of Final Report.  A final version of the report will be prepared.  This will reflect any changes or amendments to the draft, and will incorporate the outcomes of the workshop.  The Action Plan will describe implementation priorities, and identify sources of follow-up assistance for the Government, as necessary.

Phase IV: Monitoring

Task 13: After the reforms have been implemented, they must be monitored to assess their impact. When many reforms have been enacted, it is only normal that some will be successful and some will be less successful. Therefore it is necessary repeat Task 2 (government templates) and Task 3 (business survey) in order to measure the change from the baseline assessment. Reforms that have been successful can be “crossed off the list”; reforms that have been unsuccessful will need a new strategy. Monitoring also leads to the identification of new priorities, so that the Action Plan can be up-dated.

Expected Inputs and Outcomes:  An important aspect of the FIAS administrative barriers product is the collaboration with local counterparts who will conduct the self-assessment and are expected to be active participants throughout the study, to undertake the role of consensus builders in discussing the findings of the study, and to assist in developing  an effective approach for implementation and reform. FIAS input into the process can include the following:

• Help with preparation/training for the up-coming admin. barriers work;
• Help with tailoring the instruments (survey + templates) to fit the specifics of the client country;
• Supervising baseline survey;
• Help with analyzing the output of the instruments and identifying the most problematic areas;
• Help with identifying/organizing expertise to investigate identified problem areas in more depth (experts will write analysis/recommendations for inclusion in admin. barriers report);
• Reviewing draft "admin barriers report" and recommendations;
• Help facilitating the dialog between govt. and business community and help guiding the writing of an Action Plan (e.g., help in identifying private sector representatives; reviewing Action Plan, etc.);
• Help in finding specialized expertise for implementation of elements of Action Plan as needed;
• Help in establishing the monitoring system and help analyze the results (comparison of second round of survey + templates with baseline)

The project as described is in essence the first stage in a comprehensive and long-term reform effort.  While there will certainly be some immediate changes which can be realized easily, others will require additional work and can only be implemented in the longer term.  Some reforms included in the Action Plan may require legislative changes, while others may be affected by regional initiatives.  The exact nature of implementation efforts will depend on the degree of consensus reached by the main stakeholders.  In practice, some agencies will be more amenable to reform.  After the full study has been completed and the Action Plan has been agreed, follow up assistance can target these agencies to assist them with redefining their role, adopting a service orientation, and streamlining internal procedures (not included in budget below).  In some cases, assistance may be required in legislative changes to ease requirements.  In other cases, substantial capacity building may be needed, in the form of better technology and improved human resource capability, to efficiently implement streamlined procedures while maintaining regulatory effectiveness.

After there has been time to implement the reforms, there is a need for monitoring and evaluation.  The templates and initial business survey form a baseline against which progress can be monitored on a regular bases, by updating the templates and repeating the business surveys on a regular basis (e.g., once per year). It is likely that international assistance would be beneficial for one or possibly two rounds of monitoring, especially to analyze the trends and to identify which reforms are on track and which are not yielding the desired results (not included in budget below). After that, the monitoring and evaluation system should be fully localized. The exercise of updating the templates and gathering hard data from the agencies should be sponsored by the counterpart team, while the business surveys should be sponsored by the business community (e.g., the Chamber of Commerce, a grouping of business associations, or other representatives of the business community).

Thus the countries that participate in the program will have the tools for self-assessment of administrative barriers, dialog with the local business community to develop priorities for reform and to prepare an Action Plan, to implement reforms, to monitor progress with reforms, to make revisions to the reform strategy where necessary, and begin the cycle again (see diagram below).