The Administrative Barriers Study: Foreign Investment Advisory Service

The Administrative Barriers Study Objectives and Approaches

Foreign Investment Advisory Service

Wha t i s FIA S? • The Foreign Investment Advisory Service • a joint facility of the International Finance Corporation and the World Bank • Experience in over 125 countries, over 15 years

FIA S’ M odu s O pe ra ndi • FIAS’ mandate is to provide advice to governments that want to attract more FDI • FIAS works only at the request of governments • FIAS reports are confidential for the client • FIAS co-finances about half the cost of its work in most client countries

Ad mi nistra ti ve Ba rr ier s to I nvestm ent S tu dy • • • • •

What they are Why they are useful How they are conducted Where they have been conducted What are the outcomes

Wh ile Ma ny N at ion s H ave Imp le men ted M ac ro Ref orm s… • e.g., liberal investment legislation • “national treatment” • liberalizing the foreign exchange market • creating a more stable macroeconomic environment

… Seco nd- tier P ol icy a nd Regula tor y C onstra ints R ema in • Investors must spend substantial amount of time, money and energy to obtain the required permits, licenses, authorizations, etc.; • Each of the required approvals involves multiple agencies, forms, steps, etc.; • The process lacks transparency, and often depends on who knows whom; • Government authorities and agencies face problems of overlapping, even

Ad mi nistra ti ve Barri ers •Acquire Business Visa s • with Investment e tia • Register v i t Ex n te e •Get Import Permitwi IncPromotion pAgency or m t i tG h a l U•nApply for Incentives •C oo ds ion •Get Employer ID s •Re • Apply for Investor Permit newExpatriate •Apply for Inve s t i s f t • Work Permits orrP o Find Land P erm e t its •Apply for License a i r • Apply for Land t a p e es R s • n e c i L •Register •Renew Business •N •Get Tax ID ego

Senegal: Le Parcours de l ’Investisseur Ministère de l’ Industrie

Ministère de l’ Environnement Sonatel

n

SGS

Inspection du Travail

Douanes

Statistiques du Travail IPRES

Dossier de Dédouanement

tio

BREP/ Douanes

Carte ImportateurExportateur

isa

Demande

’au tor

Demande

sier

Direction Commerce Extérieur

Attestation de vérification

éd

Dos

ONAS/SDE

Titre d ’ exonération

Ar rêt

Demande

Bureau des Etablissements Classés

Senelec

Déclaration du mouvement du travailleur

CSS

Présidence Travaux Publics Services d ’Hygiène

Agrément au Code des Investissements, Entreprise Franche Avis Technique

Protection Civile

L ’Investisseur

Domaines Service Régional de l’Urbanisme

Cadastre

Elaboration des Statuts de Société

• prépare 23 dossiers différent ; • passe par 31 services de l ’administration (dont 6 plusieurs fois) ; • passe neuf a vingt-quatre mois pour finaliser ces procédures.

Dossier/Permis de Construction

Notaire (Privé)

Enregistrement des Statuts de Société

Commission de Contrôle

Enregistrement des Statuts

Demande de terrain NINEA

Ministère de l ’Economie, Finance, Plan

Prévision et Statistique

IPRES

Caisse de Sécurité Sociale

Centre des Impôts

Déclaration d ’Ouverture

Ministère de l ’Intérieur

Affiliation

Affiliation

Direction de l’Industrie

NITI Carte d ’Identité

Organisation Africaine de la Propriété Intellectuel

Numéro Compte Contribuable Adhésion Déclaration Investissement Etranger

Institution de Prévoyance Maladie

Tribunal du Commerce

Attestation Industriel

Enregistrement Propriété Intellectuel

Direction de l’Industrie

Centre des Impôts

Déclaration de Conformité

Registre du Commerce Direction des Domaines

Guichet Unique

Inspection Régionale du Travail

Centre des Formalités des Entreprises

Often , In ap pr opr ia te Structu res A re a t th e Roo t of the P ro bl ems • Economic philosophies have changed, but bureaucracy hasn’t • Governments take control-oriented approaches • Private sector is considered “guilty until proven innocent” • Bureaucracies designed to prevent abuse - not to be efficient • Opportunities for corruption

Objectiv es : Simpl ify an d Stream line I nvestm ent Pro cedu res

• Identify major administrative barriers • Set an agenda and timetable for the removal of barriers • Introduce an international perspective • Propose an approach to internalize the reform process

WH Y A DMI NI STR ATIVE BAR RI ER S? • Reform, adjustment and liberalization in place or underway • Lack of private investment response • Investment climate still problematic • Need for vehicle to examine investment climate in a comprehensive fashion • Not a fundamental determinant of investment, but still a negative factor

SYM PTO MS of ADMI NI STRA TIVE BAR RIER S – Rigid and pervasive barriers between formal and informal sectors – Lack of 100 percent foreign investment – Low realization rates for projects – Emphasis on screening and restriction of entry as regulatory tools, rather than monitoring and enforcement – Corruption – Poor government-private sector relations

EF FE CTS on INVE STME NT CL IMATE – Increased business costs • Delays • Managerial time • Bribes

– Uncertainty • Scares off prospective investors; distorts project structures • Complexity means any business is always in violation of some law or regulation • Businesses exposed to capricious enforcement

EFFE CTS on TY PES of INVE STO RS – Foreign Investors • Loss of the “good” foreign investors so actively promoted • Attraction of those who can “work the system”

– Informal Sector • Raised hurdles for compliance • These costs are as important as taxes

– Domestic Formal Private Sector • Bears brunt of regulations and taxes

We Divi de the Mo del into F our Se cti on s o ve r Two Phases. Employing

Functioning

Locating/ Site Development

Startup Investor

Reporting

Operating

The C ore Pr ocess es a re Gr ou ped i nto Fo ur Gen eral Ca te gori es. • Employing, including investor visas/ expatriate work permits, application for incentives, etc. • Site Development, including land allocation, title deed transfer, rezoning, building permits, utility provision, and environmental clearance.

The C ore P ro cess es a re Gr ou ped i nto Fo ur Gen era l Ca te gori es • Reporting, including company registration, tax registration, Central Bank registration, investor visas/ expatriate work permits, application for incentives, etc. • Operating procedures, tax payment, import/export procedures, site inspection, labor hiring and firing

We S egre gate the F our Gr oups Into 13 Pr oce sse s Find Land

Hire Local Labour

Transfer Ownership

Expatriate Work Permit

Develop Site Environment

Investor Visa Investor

Register Pay Taxes Acquire Incentives

Import Export Repatriate Profits

Each Pr oce ss Is A na lyz ed o n Fo ur Dimen si on s • What purpose(s) is the approval intended to serve? • How easy is it to go through the approval? • How long does it take to process? • How much does it cost?

METHO DOLOGY an d SCO PE – Documentation of all procedures, licenses, requirements • Steps • Institutions • Delays • Costs

– Assessment and recommendations – Workshop and dissemination – Implementation

METHO DOLOGY an d SCO PE • Perspective of firm/investor – Regulations, and how they are implemented

• Organization follows investment process – – – –

General approvals Sectoral licensing Land, site development and utilities Operational requirements

• FIAS experience to date – Ghana, Namibia, Mozambique, Uganda, Swaziland, Lesotho, Mali, Madagascar, Senegal, Mauritania, Zimbabwe, Jordan, Latvia, Lithuania, Bolivia, Bulgaria, Slovenia, Croatia

GE NER AL A PPR OVAL S – Complex investment codes, incentive schemes, and approval requirements – Company registration formalities and delays – Tax registration – Immigration permits – Business licenses – Other registrations

ACCESS to L AND a nd SI TE DEVEL OPM ENT – Greatest source of delays and frustration – Access to land • Delays in identifying and securing government land • Delays in title transfer • Lack of capacity • Decentralization

– Site development • Duplicative review and permitting • Lack of published standards • Circumvention, especially at local levels

UT IL ITIES – Delays in service extension • Lack of capacity • Priority to government

– Companies pay full costs of extension • No compensation

– High costs – Poor service provision • Cutoffs and brownouts

– Limited alternatives available • Lack of serviced land or industrial estates

– Privatization is bringing results

OPE RATIO NA L REQUIR EMENTS – Foreign exchange controls • Hangovers despite liberalization • Most current account transactions freed

– Labor, health and safety regulations • Duplicative reporting requirements • Duplication of workplace safety oversight • Liberalization has ended most direct controls

– Import-export procedures • Customs and Port administrations • Corruption and arbitrary enforcement • Import licensing maintained

TYPE S o f CON STR AIN TS ENCOU NTE RE D – Poor policy formulation • Investment codes and sectoral licensing

– Policies reformed, procedures remain • Trade licenses

– Poor procedures • Construction permits and approvals

– Ineffective bureaucracies • Lack of capacity • Undermined by corruption • Lack of coordination

– Systemic issues • Land • Public utilities

IM PL EM ENTA TIO N – Mode has varied widely across countries – Requires high level political support – Direct participation of line agencies – Task force with regular monitoring and defined time frame – Pilot projects – Competition among agencies – External financial and technical support • Difficult to structure policy conditionality

Ob vi ous Be nefits Co me From th e R edu cti on of Red Tape

• The elimination of unnecessary steps and procedures • The simplification of remaining approvals (forms, documentation, etc.) • The availability of information, facilitation, and other assistance for investors. • Increased efficiency, effectiveness, and accountability of government executing agencies.

Draft R eport • Description of each of the processes • Analysis – Investors’ experiences – Cross-country comparisons

• Recommendations

Rou nd-Ta ble Work shop t o pre sen t t he D ra ft R ep or t • Participation by relevant Government agencies • Representatives of the private sector • Donor involvement

Round -Tabl e Dis cu ss ions • An Investment Round-Table: What is it? ✹ A body made up of high-level representatives from both the public and private sectors

• What would it do? It would: ✹ identify the most important issues affecting business activity; ✹ work through recommended changes to laws and rules; ✹ present the recommendations to the policy-makers who have the authority to act

Fo rmi ng an Adv iso ry Gro up • Use broad pub lic sector/ pri vate se ctor forum (e.g., Chamber of Commerce) to form Advisory Group; • Use Advisory Group to decide which are mos t imp ortant issues and who needs to be represented - form W ork ing Grou ps; • Use smal ler pri vate org ani zation s (e.g., Trade Associations, etc..) to vote on representatives to working groups; • Use working groups to find sou rce s o f inf ormation and referees (e.g., courts, academia, consultants); • Use working groups to come u p wi th spec ific recommend ation s for review by larger Advisory Group; and • Use Advisory Group to present reco mmend ation s to pol icy mak ers (Cabinet or Parliament)

Imp le men tation a nd Follo w-Up • Requires: – high-level Government commitment – active private sector involvement – outside support

• Can yield: – more efficient Government agencies – reduced corruption – better relations between public&private sectors

Wh ere FI AS h as don e s uch studies • Latvia, Lithuania, Bulgaria, Romania, Slovenia • Bolivia • Jordan, Egypt • Ghana, Uganda, Mozambique, Namibia, etc. • Brazil, Turkey, etc.

RE SUL TS • Institutional approaches – Ghana Gateway Secretariat pushed reduction of import clearance time from 2 weeks to 3 days

• Streamlining – Tanzania reduction of delays in immigration permits from 6 months to 2 weeks

• Capacity Building – Resources to registrars in Namibia and Uganda

• Policy Reform – Galvanized support for reform in Senegal – Significant regulatory changes in Jordan

• Customer service approaches – Windhoek investor’s window