Supporting Business Environment Reforms

(Practical Guidance for Development Agencies, the Draft was distributed for the Accra Conference, October 9-13, 2007)

Linked with Association of International Schools in Africa aisa, and with The Donor Committee for Enterprise Development.

Picked up on Weitzenegger’s Website for International Development Cooperation, and its Newsletter.

Published on Enterprise, by Donor Committee for Enterprise Development, 34 pages, 5-7 November 2007.

Download the Draft:

This guidance incorporates the views of a broad range of development agency staff working to support business environment reforms for the private sector development. The Donor Committee relies on you, development practitioners, to assess the content and usefulness of this guidance and give us your feedback so that we can improve the guidance before publishing this edition. (Constructive feedbacks by email to Simon White and Andrei Mikhnev or through the web-site).

Key Messages:

i. The Donor Committee for Enterprise Development presents the following key messages for development agencies which support business environment reforms that contribute to economic growth and poverty reduction in developing and transition countries.

ii. Business environment reform is not a one-off act. It is a continuous process of adapting to new challenges and changes as they emerge. Development agencies should understand and add value to reform processes by supporting reforms that are more transparent, evidence-based and equitable.

iii. Rather than addressing the isolated symptoms of a bad business environment, development agencies should support reforms that provide broad incentives for the private enterprises to grow. The private sector in large should benefit from business environment reform and therefore have more incentives to invest, innovate, and create more and better jobs.

iv. It is important to understand how reforms work in any given context. Development agencies should understand the political economy of change and strengthen domestic reform processes by building and supporting coalitions of reform-minded actors and helping public and private actors participate jointly in reform processes.

v. Development agencies should support and reinforce existing drivers of change and contribute to the creation of new drivers of change, such as through the use of comparative indicators and benchmarks. Such indicators and benchmarks should help prioritize and stimulate reforms.

vi. Because government is a primary actor in the design and management of the business environment, development agencies should support government leadership by providing flexible support, information and guidance, and by encouraging government to take full ownership of reforms efforts.

vii. Business environment reforms are most successful when embedded into the systems of government, parliament or other policy-making structures. Reform interventions should be integrated to ensure that change in one aspect of the policy, legal, regulatory, or organisational framework, is consistent with other changes.

viii. Development agencies should formulate a communication strategy that helps programme partners and the broader society to understand the benefits of change, rather than focusing on the costs to change. Such strategy should also present a clear vision of the future system that reform leads to. A communication strategy plays a critical role in
shaping the public perception of Government commitment. Moreover, proper communication of the reform process will increase the likelihood of a more rapid response of the private sector to the improved environment.

ix. Good diagnostics are important to identify critical reform targets (i.e., the reform agenda) that focus on the causes of market failure rather than the symptoms. Development agencies should support reforms that are strategically focused by assigning a high priority to those areas of the business environment that have a strong bearing on the cost of doing business and are doable in specific country conditions. While these priorities will vary from country to country, the greatest impact of reform will come from focusing on the most binding constraints to business activity and addressing the factors that contribute to this.

x. In some cases, initial reform efforts should be prioritised on the areas that are easiest or have the most immediate (rather than greatest) impact on the business environment and the performance of the private sector. If properly selected and designed, these reforms demonstrate how reform can create improvements and build competencies and confidence among programme partners and build the ground for scaling up the reforms.

xi. Development agencies should accept that reform takes a long time, particularly in a country context where education levels and the understanding and capacity for good governance are limited. They need to be realistic when setting targets and timeframes for business environment reforms.

xii. Development agencies should avoid duplication of reform efforts by coordinating the design and monitoring of their programmes with other development agencies. Collaboration among development agencies shares risks and provides access to a larger pool of expertise. Where possible, multi-agency collaborative mechanisms should be used to support business environment reform and to promote agency coordination. In some cases, developing and transition country governments may lead these efforts.

xiii. Development agencies should support the alignment of business environment reforms with broader government plans such as Poverty Reduction Strategy Papers and Private Sector Development Strategies), while taking care not to apply generic programme planning frameworks that limit the role of the private sector and the importance of the business environment.

xiv. Development agencies should mainstream private sector development into broader economic, social and environmental policies and include business environment reforms in their efforts to promote private sector development, economic growth, equity, and poverty reduction. This will reduce the burden of multiple project management procedures on governments and lessen the transaction costs associated with the provision of external financing.

xv. Development agencies should support the creation of a client-oriented culture that treats the private sector in a more professional, accountable and transparent manner. They should ensure that a designated oversight and management authority that cuts across the whole of government is in place to manage reform processes, which includes representatives of the private sector and civil society.

xvi. Development agencies should emphasise the importance of implementation, which includes a commitment to the competencies and capacities of development agencies and their partners to make reforms work. This often implies the need to address issues associated with poor governance, organisational weaknesses and corruption.

xvii. Development agencies should support “right” reforms,–in other words, the reforms that proved to be effective and benefited the private sector development. It’s the responsibility of development agencies to help the client governments prioritize and design reforms that apply international best practice and experience, rather then to take a passive role of funding “any”.

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