PRO-POOR BUSINESS ENVIRONMENT: LESSONS FROM INDIA AND SOUTH AFRICA

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PRO-POOR BUSINESS ENVIRONMENTLESSONS FROM INDIA
AND SOUTH AFRICA

• Marty Chen
• Harvard University
• WIEGO

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POINT OF DEPARTURE

• need for a pro-poor business environment
• most of the worlds poor work in informal
  enterprises or informal jobs
• a pro-poor business environment is one that
  enables
• enterprises that employ the poor
• enterprises of the poor
• my remarks will focus on the enterprises of the
  poor
• enterprises of the poor the most micro of
  enterprises
• existing business environment often biased
  towards larger more-formal enterprises

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PRESENTATION

• 1 Empirical Reality Informal Enterprises
• 2 Conceptual Framework Understanding the
  Linkages between -
• informal economy
• formal firms
• formal regulatory environment
• 3 Illustrative Cases Innovative Responses to
  Inherent Biases in the Business Environment
• municipal by-laws in South Africa
• forest sector policies in India
• 4 Policy Framework Pro-Poor and
  Employment-Led Growth

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INFORMAL ENTERPRISES EVERYDAY AND EVERYWHERE

• In Small Workshops
• scrap metal recyclers
• shoe makers
• weavers
• garment makers and embroiderers
• paper-bag makers
• On Streets or In Open Spaces
• street vendors
• push-cart vendors
• garbage collectors
• roadside barbers
• In Fields, Pastures, and Forests
• small farmers
• shepherds
• forest gatherers
• At Home

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Distribution of Enterprises and Workers by Size
of Enterprise Informal Manufacturing in India

• Source Jeemol Unni 2005
• Notes
• no hired workers own account operations
• there are unpaid family workers in about 40 of
  own account operations

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Distribution of Workers in Informal Enterprise
by Economic SectorSouth Africa 2001
Source StatsSA (2001b) Note These South
African data include unregistered own account
workers and employers plus workers in enterprises
that are not registered to pay value-added taxes
(VAT). They do not include small holder farmers,
domestic workers, or employees working under
informal work arrangements in formal firms.
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THE INFORMAL ECONOMY, THE FORMAL ECONOMY,AND
THE FORMAL REGULATORY ENVIRONMENTUNDERSTANDING
THE LINKAGES

• INFORMAL FORMAL ECONOMY FORMAL
  REGULATORY
• ECONOMY ENVIRONMENT
• Informal Enterprises A C
• Informal Workers B D
• Types of Linkages
• A unregulated commercial relations
• B unprotected employment relations
• C lack of registration and taxation lack of
  business development services and incentives
• D lack of legal recognition and protection
  lack of social protection

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INHERENT POLICY BIASES AND INNOVATIVE RESPONSES

• Common assumption informal entrepreneurs choose
  to operate beyond the reach of formal regulations
  and taxes
• Complex reality
• people work in the informal economy by choice,
  necessity, or tradition
• formal regulations and taxes often reach informal
  enterprises
• formal regulations and taxes often biased against
  informal enterprises
• Illustrative cases innovative responses to
  inherent biases in business environment
• South Africa municipal by-laws
• - India forest sector policies

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SOUTH AFRICAMUNICIPAL BY-LAWS

• apartheid era severe restrictions on informal
  activities
• 1991 Business Act removal of barriers to
  informal activities
• 1993 Amended Business Act decentralization of
  responsibility for informal activities to local
  authorities
• currently mixed response by local authorities to
  informal activities

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RESPONSE OFDURBAN/eTHEKWINI MUNICIPALITY

• Street Traders
• simplification decentralization of
  registration
• representation of street trade organizations on
  planning and policy committees
• provision of support to street trade
  organizations using existing municipal assets
• revitalization of large informal market in the
  inner city
• Traditional Medicine Traders
• dedicated market with shelter, storage, water,
  and toilet facilities
• training of medicinal herb collectors
• sustainable harvesting
• cultivation techniques
• product processing plant
• Waste Collectors
• - buy-back centre for cardboard waste
• - public-private-community partnership

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INDIA FOREST SECTOR POLICIES

• nationalization of forests
• government monopoly over forest products
• national and state forest development
  corporations regulate collection, sale, and
  price of forest products
• gum collection
• government controls where gum is collected and
  sold (and at what price)
• government creates legal barriers to obtaining
  licenses to sell
• salt farming
• government requires license for salt farms gt 10
  acres
• government grants permits for rail transport to
  salt farms gt 90 acres

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RESPONSE OFSELF-EMPLOYED WOMENS ASSOCIATION
(SEWA)

• Gum Collectors
• organization of gum collectors
• license to sell to government and on open market
• protective gear to prevent occupation health
  hazards
• appropriate technology to increase yields
• Salt Farmers
• organization of salt farmers Association of Salt
  Farmers
• amendment to law regarding access to rail
  transport
• permit for rail transport for Association of Salt
  Farmers
• revolving loan fund for salt farmers

Notes SEWA is the Self-Employed Womens
Association (SEWA) of India As of end 2003, there
were over 10,000 gum collectors and salt farmers
among the nearly 470,000 SEWA members in Gujarat
state, India.
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PROMOTING PRO-POOR AND EMPLOYMENT-LED GROWTH

• Pro-Poor and Employment-Led Economic Policies
• - macro-economic policies
• - micro-economic policies
•  
• Pro-Poor Taxation and Expenditure
• Pro-Poor Safety Nets
• Pro-Poor Markets
• Notes
• Employment-led growth with investment in
  labour-intensive sectors and
• technologies
• Pro-poor targeting the working poor and
  correcting for anti-working poor biases