BDS Service / Strategy
Building the Capacity of Governments to Enact and Enforce an Enabling Policy Environment for SEs and BDS Market Development
Potential Target Groups
This strategy benefits large numbers of SEs because it addresses policies that affect all of them. BDS providers also benefit because the strategy helps open markets for their services.
The intermediary organizations that are partners in this strategy are national government agencies active in macro-economic policy formulation and enforcement and local government agencies and institutions involved in forming and enforcing local, private-sector policies. The strategy also engages civil society groups, business development service providers, industry associations, and small enterprises themselves.
Purpose and Rationale of Service
Small scale business development service providers and SEs traditionally must accept the policy and regulatory environment in which they operate. Unlike larger firms, they lack visibility and the necessary political clout to push through favorable legislation for their business endeavors. The purpose of this intervention is to facilitate change and create a policy and regulatory environment that leads to the establishment and/or ongoing development of a sustainable, mature, and competitive market for business services for the full range of micro, small, and medium enterprises.
When is this Activity Appropriate?
This activity is appropriate when existing BDS providers and small enterprises identify policy and regulatory issues as a primary factor inhibiting the provision of effective business services. Similarly, the lack of a policy environment that is friendly to small business may also be the reason a BDS market is ineffective.
Methodology
This type of intervention calls for a process that helps local stakeholders create and maintain a policy development process that facilitates ongoing and responsive policy formation and modification for changing markets. Activities should identify and push through reforms that have a visible and immediate impact and can serve as catalysts for continued policy reforms.
The process typically entails an enabling environment program, often a component of a larger microfinance and/or BDS intervention, serving as an intermediary between SEs, BDS providers, and policy makers. This active and ongoing involvement provides the program with an increased understanding of local conditions. Ultimately, however, the program must work towards locally-led and -owned policy development.
Illustrative Methodology
§ Assess the degree to which a country has a supportive policy framework for BDS—transparent and accountable government mechanisms, impartially enforced contracts, absence of graft and/or intimidation by government officials, how BDS providers and SEs perceive it, etc.
§ Survey actors involved in making policy to understand the context in which it takes place and to engage stakeholders in the reform process from the outset. This should include both the formal policy process and the context through which it is viewed. It also should identify the key government agencies / ministries (and civil society) involved in private sector policy, the degree of their involvement, and how and when decisions are made.
§ Mobilize BDS providers and SEs to identify the specific policies that negatively impact them and their priorities for reform.
§ Building stakeholder investment: construct a platform with input from key stakeholders—relevant government agencies, donors, and civil society. Develop policy alternatives that address the identified problems.
§ Promote recommended policy and regulatory reforms with relevant government agencies in order to fast track necessary modifications.
§ See these policy initiatives through to completion, identifying and trouble-shooting bottlenecks throughout the process.
Finance and Cost Recovery
Full cost recovery for such an intervention is unlikely. Ideally, funding for this type of activity would come from the host government. Its willingness to finance such activities would likely see greater buy-in from key decision makers and facilitate the entire process. Donors may also fund this type of intervention. However, to ensure a sustainable, private sector BDS policy and formation process, key civil society groups such as business associations should become involved and encouraged to recover the costs of effectively lobbying the government for policy change through fees for membership and services rendered.
How Should the Program Be Evaluated?
Program evaluation should take place in both the short and long terms.
Short term:
In the short term, the program should be evaluated for its ability to effect policy change. A key indicator is the number of policies created or revised that become law. This should be weighed against the importance of these policies as determined by the initial assessment and the degree to which these new laws, following inevitable revisions during the political process, resemble the “ideal” policies initially envisioned by the program.
Long Term:
In the long term, program success should be measured by the real impact policy changes have on the establishment of an effective and mature business development services market and on the benefit this brings to small enterprises. Benchmarks should be set in the initial project objectives and the data that is monitored should include: access to the market for BDS, the number / size of BDS providers, outreach, affordability, product range, provider cost-recovery and sustainability, etc. Data should also indicate impact on SEs, product availability, usefulness of available service options, willingness to pay for more BDS, etc.
Potential Impact
Illustrative direct impacts may include:
§ Reduced subsidies in the business services market can create opportunities for private sector business suppliers to enter it. This should lead to an increase in supply of BDS to SEs, in more demand-driven and effective services and, ultimately, to increased SE growth.
§ Reduction of taxation, bribery, and harassment by government agents can be reduced, which increases the profitability and viability of SEs—a benefit in and of itself. This increased profitability and cash flow also increases SE ability to purchase business services, which leads to further growth.
§ Less complex business registration and reporting requirements make it easier to start up BDS businesses and to innovate rapidly.
§ Greater access to credit due to improved inheritance and property rights (especially for women.)
§ Improved allocation of import licenses and/or foreign exchange can facilitate access to imported inputs and give BDS providers the ability to help SEs procure them.
§ Local governments can compete against each other to attract business through more attractive regulatory environments, thereby creating an environment for continuing regulatory improvement within a country.
Length of Intervention
The time needed to organize and carry out legal reforms varies widely. Policy debates can take a significant amount of time and changes often necessitate the modification of existing (formal or informal) ways of doing business. Further, an effective program must go beyond enacting policy and include training for government officials in the new law, thus adding to the time it takes to implement a program.
Illustrative Programs, Sectors, and Regions
USAID programs:
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§ Jordan AMIR
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Where to Get More Information
Because the field of BDS is relatively new, there is little activity and documentation available on improving the enabling environment. Following are some websites that contain information on improving policy and the enabling environment for SEs in general.
http://www.grassrootsfreemarket.org/
Forthcoming papers on the Enabling Environment for SEs:
Lessons Learned
§ Ultimately, any policy change that contributes to sustainably higher growth of a host country economy tends to benefit the majority of companies, whether micro, small, medium, or large in size. Nevertheless, there are often vested interests opposing this type of policy change and it is important to understand who they are and to develop strategies to either bring them on board or out-maneuver them.
§ Because government programs often distribute free or subsidized BDS and sometimes use political priorities to allocate funds, it is important to be clear about alternative / appropriate roles for government in a “market-based” approach. Suggesting new career paths for staff working with subsidized programs is also crucial—becoming private sector providers of BDS could be a realistic option.