Business Regulation Simplification Project Impact

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Business Regulation Simplification Project Impact

• HONDURAS
• San Pedro Sula Tegucigalpa

Bernard Kilian (PhD) May, 2007
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Agenda

• Objective
• Methodology
• Profile of Tegucigalpa San Pedro Sula
• Survey Design
• Sample /selection criteria
• Process of Survey Application
• Tabulation Data Analysis
• Reports
• General Comments to the Methodological Proposal

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Objective

• Review current approaches to measure the impact
  of business license procedure simplification in
  order to develop a standardized model that can be
  applied globally.
• Questions expected to be answered through the
  proposed approach are
• How does better licensing contribute to improve
  an enterprise overall performance?
• What are the long-term benefits in terms of
  socio-economic development ?
• Are enterprises with better business regulations
  growing faster?
• What are the benefits for the municipality?

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Objective

• Firms performance can be expressed in terms of
• Profitability
• Productivity
• Costs reduction
• Growth in sales
• Employment
• Health working conditions
• Long-term benefits for entrepreneurs employees
• Social and environmental performance

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Methodology

• Profile of Tegucigalpa and San Pedro Sula
• Survey design
• Development of questionnaire
• Sample / Selection criteria
• Treatment Control groups
• Field testing
• Process of survey application
• Tabulation and data analysis
• Reports

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Research Design

• Describe Impacts of formalization for

Focus of the Study
Country
Municipality
Community
Value Chain
Suppliers
Customers
Companies
Employees
Source The author, based on concepts contained
in the paper entitled Economic Growth and
poverty Does formalization of Informal
enterprises matter?. Esther K. Ishengoma Robert
Kappel. April, 2006
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Profile of Tegucigalpa and San Pedro Sula

• Economic status of the Municipality
• Production data
• Main sectors
• Firms
• Composition Small medium large
• Classification of economic activities
• Geographic distribution
• Relevant macro and micro environment
• Recent evolution / perspectives
• Taxation
• Institutions and Policies
• Municipal Regulations
• Simplification process

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Survey Design Topics of Interest

• Companies (1/3)
• Evolution of sales
• Evolution of prices
• Expansion of operations
• Quality of goods/services
• Evolution of formal suppliers
• Bargaining process with suppliers
• Access to public procurement
• Transaction costs
• Bribes / penalties
• Extra-costs
• Harassment
• Confiscation

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Survey Design Topics of Interest

• Companies (2/3)
• Juridical Security dispute resolution in courts
• Access to new clients
• Publicity / more visibility
• Access to a wider market
• Improved access to public services
• Water, electricity, telecommunication, others
• Participation in government support programs
• Access to financing
• Taxes and fees

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Survey Design Topics of Interest

• Companies (3/3)
• Access to business services
• Training
• Professional management consultancy
• Technological
• Business fairs
• Participation in business associations
• Access to cooperation among business

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Survey Design Topics of Interest

• Employees
• Evolution of casual and permanent employees
• Health insurance and pension benefits
• Access to other benefits according to Law
• Gender issues
• Evolution of average salaries
• Unions / employees bargaining power
• Training

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Survey Design Topics of Interest

• Communities and municipalities (1/2)
• Increased number of tax payers
• Business running under law
• Access to supervise business activities
• Wealth /security for families
• Products and services under control (avoid wealth
  problems)
• Garbage control
• More safety and livable community
• New sources of formal employment

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Survey Design Topics of Interest

• Communities and municipalities (2/2)
• Environmental benefits
• Accountability of the municipality economic
  performance
• Information for planning
• Controlled municipal services water,
  sanitation, electricity

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Sample / Selection Criteria

• Questionnaires will be applied to 2 groups
• Companies
• Municipalities
• Two groups of companies
• Formal have obtained the license after the
  reform (treatment group)
• Informal (control group)

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Sample / Selection Criteria

• Definition of sample size will depend on
  background study (number of business, sectors,
  size of companies)
• Sampling method will be defined to reflect the
  composition of businesses in the municipalities
  according to size, economic activities and
  geographic distribution.

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Sample / Selection Criteria (Cont.)

• The municipality or AMHON will provide the
  information of formal business and sectors
  composition, both in San Pedro Sula and
  Tegucigalpa
• Business Micro, Small, Medium and Large
• Sectors Commercial, Industrial, Services
• A sample of formal companies (randomly chosen)
  will be selected according to the resulting
  structure in each municipality
• Sample size will be statistically determined
• Only business formalized recently will be
  considered

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Sample / Selection Criteria (Cont.)

• However, a major restriction could be faced when
  a sample (statistically selected) in a particular
  group/sector cannot be obtained because
• Not enough companies were formalized in the last
  year in a particular group/sector
• Business owners are reticent to collaborate
• Because of difficulties foreseen in ensuring
  participation of informal companies, the
  following approach could be used
• The sample of formal companies will be selected
  ensuring that they have operated informally at
  least one year.
• Company performance after formalization will be
  compared with the performance of the same company
  when they were informal
• Benefits ties performance to formalization
  (excluding other variables)

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Process of Survey Application

• Define periodicity of surveys
• Alliances with local academic institutions as
  operational partners
• Ensure proper training of local partners and
  definition of communication channels
• Develop incentives for participating companies
• Forgiveness of fines (for companies who declare
  being or having been operating informally), tax
  discounts, technical assistance, or other type of
  incentives could be used

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Tabulation and Data Analysis

• Use of technology to ensure quality control
• Standardize formats for data collection, storage
  and presentation
• Development of adequate statistical tools for
  data analysis

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Reports

• Periodical reports - yearly
• Final report
• Conclusions
• Lessons learned
• Recommendations

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General Comments to the Methodological Proposal

• The objective is worthy and the general approach
  is appropriate
• The information can be very valuable to improve
  future policies and programs
• Some practical limitations
• Sampling and surveying the informal sector is
  difficult
• Interviews to experts is an alternative but
  there are some risks depending on the profile of
  the interviewed
• Sampling details (e.g. size) cant be defined
  ahead of the study
• Information on composition of SMEs sector at the
  municipal level might be limited

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General Comments to the Methodological Proposal

• The scope of the study must consider availability
  of financial and human resources
• Support of the municipalities and private sector
  associations is key for the success of the study
• Formal companies are expected to perform better
  than informal ones because formalization brings
  some benefits, however, a better performance in
  sales, by example, could be related to a talented
  manager rather than the fact of being formal

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• Thank you very much!