Assessing and Adjusting Local Government Action to Improve the Enabling Environment

1. Assessing and Adjusting Local Government Action to Improve the Enabling Environment Jörg Meyer-Stamer

2. 1. Addressing the “Enabling Environment”: Organising different approaches

3. Conceptualising the Enabling Environment for Business created by government Laws andregulations Servicedelivery Generic lawsand regulations Sector-specificlaws and regulations Generic services Developmental activities Business registration (Mass) Transport Electricity / energy SME promotion Building and otherpermits Environment-intensivesectors Roads + ports Start-up promotion Labor legislation (Tele-)Communications Water Promotion of agriculture / extension Environmentallegislation Waste disposal Education + training Export promotion ... ... ... ...

4. Approaches to address the “Enabling Environment” Regulatory Impact Assessment(RIA) InvestmentClimateSurvey BusinessClimate Survey

5. Approaches to address the “Enabling Environment” Regulatory Impact Assess-ment(RIA) Business Climate Survey (OECD practice) InvestmentClimate Survey

6. Regulatory impact assessment: Addresses both existing and newly formulated laws and regulations (“stock”, “process”) Some countries have introduced obligatory RIAs for new, business-relevant laws and regulations RIAs are typically conducted at national level Different countries have different traditions regarding regulation >> conceptual confusion Investment climate surveys Typical proxies: time and cost to register a new business time and cost to acquire property cost and ease of obtaining credit cost and ease of hiring and firing time and cost of enforcing contracts time and cost of closing insolvent business Some key issues

7. 2. Assessing the Enabling Environment:mesopartner experiences

8. Possible approaches to assess the Enabling Environment Top-Down, based on Surveys Structure: laws and regulations Process: Effectiveness + efficiency of delivery Attitude Enab- ling environ- ment Bottom-up, based on direct interaction

9. Conducted by external consultants on behalf of national government entities or foreign donors International organisations apply standard survey at global scale World Bank: Doing Business World Economic Forum: Global Competitiveness Index Top-down: Key Features of Surveys

10. Advantages Reference point, based on widely accepted concepts Permit benchmarking of business environment against other countries Relatively easy to manage, relatively predictable output Disadvantages Risk that local actors don’t “buy” the results Survey may ignore factors that are particularly relevant in specific location Data collection and analysis is lengthy and costly Advantages and Disadvantages of Surveys

11. Key Features of Bottom-up Approach • Key issues defined by local stakeholders • what are the instances of red tape and laws and regulations that really stand in the way of business? • what can be done to create quick wins regarding red tape and laws and regulations? • Stakeholder mobilisation, assessment, and action planning occur at the same time

12. Advantages not costly quick process leads to quick wins risk of “loss of face” can be managed more easily relatively easy management of expectations Disadvantages effectiveness depends on strength and credibility of local host does not necessarily generate representative data focus at action, not documentation / research documents >> potential disadvantage Advantages and Disadvantages of Bottom-up Approach

13. Structure Scan the existing body of laws, by-laws and regulations Identify those laws and regulations that are outdated, irrelevant, harmful strongly resented by business Initiate a process to deliberate and possibly revise laws and regulations Advantage: Profound change Disadvantage: Long delay until change arrives Process Assess the implementation of laws and regulations Identify opportunities to better explain them make it easier to locate and contact the responsible official make forms easier to understand and to obtain Advantage: Opportunity for quick wins Disadvantage: Does not change harmful regulations Which focus: Structure or process?

14. 3. Addressing the Enabling Environment:PACA Tools

15. The main focus in PACA Possible approaches to address the Enabling Environment Top-Down, based on Surveys Structure: laws and regulations Process: Effectiveness + efficiency of delivery Attitude Enab- ling environ- ment Bottom-up, based on direct interaction

16. Looking at government action from a transaction cost angle

17. Conceptualizing government action: Transaction costs Reduce transaction costs Increase transaction costs • Transaction • costs are the • costs of • conducting • business • transactions: • gatheringinformation(on suppliers,employees,customers etc.) • negotiatingcontracts • monitoringcompliance • enforcingcontracts • Effective and efficient legal system • Good and efficient infrastructure • Efficient, high-quality health and education system • Regulations • Permit requirements • Environmental protection • Red tape • Incompetence and inefficiency • Corruption General government activities • Networking initiatives • Management training • Entrepreneurship training • Technology extension • Preferential credit • Cost of application • Long decision period on application • Lack of transparency on decision criteria Business support activities

18. A mini-workshop format for transaction cost analysis 1) Brainstorming (group of businesspeople): Reduce transaction cost Create transaction cost General government activities Public business support activities 2) Pareto across the board. Result: Assessment of credibility of government‘s business promotion effort.

19. A standard PACA tool: The Interaction Matrix

20. The basic structure of the Transaction matrix Benefits and costs/risks of co-operation between A and B (e.g. IT firms and universities) Cost + risk Benefit + advantage ... for A ... for B

21. Looking at the interaction between local government and the private sector

22. Mini-workshop with business focus groupFirst topic: Why do you interact with local government? • business registration • building permits • other permits (e.g. environmental issues, health and safety issues) • issues related to the availability, use and acquisition of real estate • issues related to environmental impact (accidents, complaints by neighbours, etc.) • taxes and fees • traffic related issues (availability and quality of roads, parking lots / parking permits, connection of business site to public transport, etc.) • infrastructure related issues (availability and quality of water, electricity, and possibly other services) • government as a customer / buyer • information and communication in general • government-sponsored business promotion programmes For which of these reasons have you interacted with LG in the past 12 months? Which arethe most important reasons to interact with LG? How satisfied are you with LG’s performance on these points?

23. Mini-workshop with business focus groupSecond question: How do you assess the interaction with local government? • the easiness to locate the responsible official within local government, • the easiness to get hold of the local government officials a business directly interacts with, • the flexibility of local government officials when it comes to making appointments, • the friendliness and customer-orientation of the local government officials a business directly interacts with, • the empathy of the local government officials a business directly interacts with, i.e. their effort to understand a company's concerns, • the commitment of local government officials in finding a constructive, problem-solving way to address a company's concerns, • the transparency and predictability of processes and procedures, • the easiness to understand forms, • the correctness of information / correspondence / permits received from local government, • the scope and completeness of information a business receives from local government on a given issue / procedure, • the easiness to understand communication / correspondence from local government, • the timeliness of responses, and the compliance with announced / agreed / promised deadlines, • timely information and plausible explanation when a deadline cannot be met, • the plausibility of decisions by local government on specific requests / applications, • clear, consistent assumption of responsibility on the side of local government. Which ofthese items aremost relevant? -- Pareto -- How satisfied are you with LG’s performance on these points? -- Score -- Result: Assessment of government performance, to inform public sector

24. Thank you for your attention!