Creating A Conducive Legal & Regulatory Framework for Small and Medium Enterprise Development in Russia A Policy Dialogue Workshop, St. Petersburg, Russia

Creating A Conducive Legal & Regulatory Framework for Small and Medium Enterprise Development in Russia

A Policy Dialogue Workshop, St. Petersburg, RussiaSeptember 14-16, 2003

www.regulatoryreform.com

Removal of Administrative Barriers in the Context of Legal and Regulatory Reforms: Case Studies and Best

International Practices

Scott Jacobs, Managing DirectorJacobs and Associates

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Cutting red tape is a global task One of the most common complaints

from businesses and citizens is the number and complexity of government formalities and paperwork – “administrative barriers”

The solution is not simple deregulation. Many administrative procedures, even if

they are badly implemented, defend legitimate public interests. Governments must reduce administrative barriers while maintaining or increasing good governance.

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Administrative barriers have many negative effects: slow business responsiveness divert resources away from productive investments hamper entry into markets reduce innovation and job creation discourage entrepreneurship reduce competitiveness in global markets act as anti-competitive measures, giving “insiders”

protection in markets disadvantage SMEs due to disproportionate

burdens discourage new business start-ups increase corruption in the public sector


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Disproportionate effects on SMEsTotal annual administrative costs in 11 OECD countries –

Average per employee by company size for participating countries

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1-19 employees 20-49 employees 50-499 employees

US

dol

lars

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Common administrative barriers to start-ups (1)

immigration and expatriate visas, work permits, and residence permits;

investment approval (if any) and other preliminary authorizations;

registration procedures, including company, tax, social security, and municipal registrations;

sectoral business licenses (from line ministries); local and municipal business licenses; registration of intellectual property (trademarks, etc.)

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access to land and land titles or long-term leases (esp. from government agencies)

registration of title/lease construction and building permits environmental permits and approvals utility hook-ups, including water/sewerage,

electricity, telephone

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other relevant public services (e.g., gas, heat, roads, etc.);

reporting/paying taxes; import/export procedures; foreign exchange procedures; hiring/firing procedures for labor; product certification/standards; and key government inspections such as fire, sanitary,

worker safety, and environment.

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Administrative barriers in Russia

Simeon Djankov in his paper, “The Regulation of Entry,” reported that the Russian Federation was near last among 85 countries in terms of number of procedures needed to start up a company and number days:– Number of procedures for starting up a company in the

Russian Federation: 20 (average 10.48)

– Number of days needed: 57 (average 47.10)

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Strategies to reduce administrative barriers1. Informational approaches

“One-stop shop” Making formalities more available

and “user friendly”2. Process re-engineering

Reduce number of ex ante controls Independent review of red tape “Silence is consent”

3. Apply information technologies Electronic interchange of data Unique identifier for each business

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One-stop shops The “one-stop shop” for license and permit

information is now widespread. Business search costs are reduced by providing

all information on licenses and permits at a single point, including permits required, application forms, requirements, and contact details.

Other information is increasingly included: codes of practice, lists of applicable laws and regulations, information on licenses and permits required by other levels of government.

Delivery mechanisms have expanded from telephone and face-to-face interviews to CD-ROM systems, information kiosks and the Internet.

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One-stop shops: Examples (1) Mexico has encouraged private sector one-

stop shops, typically established by business and industrial associations. The National Industrial Association runs 8 shops, and the Mexico City Chamber of Commerce runs 7.

In Greece, information-based one-stop shops bring local administration services to a dispersed population via the Internet. Through the ARIADNE program citizens located in hundreds of islands can obtain and file government documents and formalities.

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One-stop shops: Examples (2) In Victoria, Australia, the benefit to

clients of the one-stop shop totals A$ 21 million per year, while the overall benefit/cost ratio of the project is 15:1.

In Italy, the sportelli unici reduced the time needed to set up a business to 3-11 months, instead of 2-5 years, which is boosting business start-ups.

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Making formalities more available and “user friendly” (1) Laws and regulations can be more widely

available and more “user friendly”, through publication and organization.

In Spain, a review of administrative formalities resulted in the publication of an inventory of formalities for the first time in 1995, updated and made available on the Internet in 1997. The inventory includes a categorization of the formalities, information on time limits for responses and the effect of non-responses, the objectives of the formality, its legal basis and the responsible administrative unit.

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Making formalities more available and “user friendly” (2) The Belgian Administrative Simplification

Agency created a register of 300 administrative procedures applicable to businesses. The register is used to set priorities for the review and simplification of procedures.

In Norway, too, the Register of Reporting Obligations of Enterprises is maintained as a means of obtaining a transparent overview of requirements on business and assisting efforts to co-ordinate and simplify these obligations wherever possible.

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Reduce ex ante controls Ex ante licenses and permits are among the

most damaging forms of regulation by: – increasing investment delays and uncertainties,– Imposing disproportionate costs on SMEs,– costly for public administrations to apply.

Some countries out-source certification functions to the private sector to provide more choice.

Best practice is to replace ex ante licenses with general rules, enforced by ex post checking such as market audits. Such programs reflect a change in the role of the state in controlling the market.

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Review of administrative burdens (1) The United States has tried to control

paperwork burdens through the Paperwork Reduction Act:– Each administrative burden on businesses

and citizens must be approved by the central Office of Management and Budget after public consultation.

– The burdens of each requirement must be estimated and noted on the form itself.

– Each requirement expires in three years, so must be re-justified after public comment.

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Review of administrative burdens (2) Mexico reviewed its business licenses

between 1995-2001. The review process: – established a complete inventory of all

formalities,– conducted a review by a certification body using

a simple RIA, – listed the remaining formalities in a national

register. Almost 80% of formalities were eliminated

or simplified. Federal Registry of Formalities is now the unique source of enforceable formalities.

The review substantially reduced the discretion exercised by the bureaucracy, and opportunities for corruption.

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Silence is consent

Delays in obtaining licenses and permits are a major regulatory cost.

The silence-is-consent or tacit authorization rule switches the burden of action entirely: if administrators fail to act within time limits, the business is automatically granted approval.

This approach is used in Italy, Mexico (30 day limit) and Spain. In Italy, the “silence-is-consent” rule, with the establishment of a single approval process, permitted a dramatic reduction in time for business start-ups

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Electronic interchange of data (1) Electronic interchange of data is an alternative

to traditional paperwork transactions. Customs electronic data interchange (EDI)

systems illustrate how ICT solutions must be based on general changes in procedures. With the EDI system, exporters, importers and their customs brokers can submit their declarations electronically from their offices.

In many countries, taxpayers are able to complete their tax returns through the Internet, rather than as a paper document, thanks to the legal acceptance of electronic signatures.

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Electronic interchange of data (2)

Mexico carries out government procurement through an Internet system, known as COMPRANET, to improve the transparency of procedures. Through the Internet, significant efficiency gains can be realized for both government purchasers and suppliers in terms of time and cost saved by retrieving and delivering relevant technical tendering documentation, government laws and regulations electronically.

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Unique business identifier In France, the SIREN number permits

interconnection between different agencies.

Through the Australian Business Number system, developed in response to the Small Business Deregulation Taskforce report, businesses have a single business identifier for all dealings with government. State, Territory and local government bodies are also able to utilize the ABN to streamline registration requirements.

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Conclusion

Reducing the operating and dynamic costs of administrative burdens can increase business start-ups and improve competitive pressures throughout the economy.

It is difficult to control administrative burdens, but a coordinated mix of strategies can produce genuine results.

Documents

Creating A Conducive Legal & Regulatory Framework for Small and Medium Enterprise Development in Russia A Policy Dialogue Workshop, St. Petersburg, Russia