Streamlining Business Registration and Licensing Procedures Experiences from the Philippines and Vietnam

1. Streamlining Business Registration and Licensing ProceduresExperiences from the Philippines and Vietnam Ulla Keppel & Le Duy Binh Asia Consultative Conference Bangkok, 29 November 2006

2. 09.09.2012 GTZ�s Approach to Streamlining Process-oriented and participatory approach Working within the existing institutional structure Involving capacity development and public-private dialogue at all stages of the reform process Flexible and pragmatic approach in terms of regional and sectoral focus In many government-led policy initiatives and donor-funded programs special attention is devoted to the role of regulatory and administrative barriers to business registration and licensing. Experience has shown that GTZ�s approach in supporting partner governments� efforts to streamline business registration procedures can be standardized to a certain degree. GTZ pursues a process-oriented and participatory approach to streamlining business registration procedures working within the existing institutional structure and involving capacity development as well as public-private dialogue at all stages of the reform process. At the same time, it is self-evident that the success of the reform efforts very much depends on the local context and on the political economy in the partner country. Hence, we take a flexible and pragmatic approach in terms of the regional and sectoral focus of our support. This point can be illustrated by drawing on the cases of the Philippines, where GTZ followed an incremental approach to policy reforms using the local level as entry point, and Vietnam, where GTZ supported the reform process at the national level. We would like to present the different experiences made in the Philippines and Vietnam by describing the approach taken and results achieved, and presenting the success factors and lessons learnt. I hope that this then serves as a good basis for discussion and comparison with other country experiences. Before going into the case studies I wanted to give you a quick impression of where the two countries stand: according to �Doing Business in 2007�, the Philipines rank 108 whereas Vietnam is doing slightly better at rank 97 (out of 175 countries in total). In terms of number of procedures and days they are similar. Costs (in % of income per capita) for starting a business are however more than twice as high in Vietnam as in the Philippines. In many government-led policy initiatives and donor-funded programs special attention is devoted to the role of regulatory and administrative barriers to business registration and licensing. Experience has shown that GTZ�s approach in supporting partner governments� efforts to streamline business registration procedures can be standardized to a certain degree. GTZ pursues a process-oriented and participatory approach to streamlining business registration procedures working within the existing institutional structure and involving capacity development as well as public-private dialogue at all stages of the reform process. At the same time, it is self-evident that the success of the reform efforts very much depends on the local context and on the political economy in the partner country. Hence, we take a flexible and pragmatic approach in terms of the regional and sectoral focus of our support. This point can be illustrated by drawing on the cases of the Philippines, where GTZ followed an incremental approach to policy reforms using the local level as entry point, and Vietnam, where GTZ supported the reform process at the national level. We would like to present the different experiences made in the Philippines and Vietnam by describing the approach taken and results achieved, and presenting the success factors and lessons learnt. I hope that this then serves as a good basis for discussion and comparison with other country experiences. Before going into the case studies I wanted to give you a quick impression of where the two countries stand: according to �Doing Business in 2007�, the Philipines rank 108 whereas Vietnam is doing slightly better at rank 97 (out of 175 countries in total). In terms of number of procedures and days they are similar. Costs (in % of income per capita) for starting a business are however more than twice as high in Vietnam as in the Philippines.

3. 09.09.2012 CASE STUDY 1: PHILIPPINESSmall and Medium Enterprise Development for Sustainable Employment Program � SMEDSEP Program start: January 2004 Overall objective: to contribute to the improvement of the business environment in the Philippines (focus: Visayas) Business registration: focus on local level Decentralized country �Mayor�s permit� one of the most time and cost intensive procedures Quick and tangible results 2 pilot cities: Ormoc, Bacolod The Small and Medium Enterprise Development for Sustainable Employment Program (SMEDSEP) started in January 2004. Its overall objective is to contribute to the improvement of the business environment in the Philippines, in particular in the Visayas region. With regard to business registration, which is one of the fields of work of SMEDSEP, our approach was to focus on the local level while still keeping the relevant stakeholders at the national level involved. There are several reasons for this: The Philippines is a very decentralized country. The Local Government Code of 1991 devolved substantial powers, responsibilities and resources from the central government to the Local Government Units (LGUs). This includes the power to create their own sources of revenue through taxes, fees and charges and to regulate and license businesses. [As the code does not prescribe any details, the LGUs have the discretion to design their own business registration procedures. As a result, steps, requirements and costs involved differ tremendously among LGUs.] One of the permits for which every enterprise has to apply for at the local level in order to start a business is the Mayor�s Permit. When SMEDSEP started, streamlining the Mayor�s Permit was identified as the most promising area for reform where quick and tangible results could be achieved because reforms could be implemented without legislative changes. Also according to �Doing Business in 2007�, among the 11 business registration procedures in total this permit is the most expensive (137 USD) and the second most time consuming procedure (11 days). Two pilot cities in the Visayas, Ormoc and Bacolod, were then chosen due to the strong political will and commitment of the mayors. The Small and Medium Enterprise Development for Sustainable Employment Program (SMEDSEP) started in January 2004. Its overall objective is to contribute to the improvement of the business environment in the Philippines, in particular in the Visayas region. With regard to business registration, which is one of the fields of work of SMEDSEP, our approach was to focus on the local level while still keeping the relevant stakeholders at the national level involved. There are several reasons for this: The Philippines is a very decentralized country. The Local Government Code of 1991 devolved substantial powers, responsibilities and resources from the central government to the Local Government Units (LGUs). This includes the power to create their own sources of revenue through taxes, fees and charges and to regulate and license businesses. [As the code does not prescribe any details, the LGUs have the discretion to design their own business registration procedures. As a result, steps, requirements and costs involved differ tremendously among LGUs.] One of the permits for which every enterprise has to apply for at the local level in order to start a business is the Mayor�s Permit. When SMEDSEP started, streamlining the Mayor�s Permit was identified as the most promising area for reform where quick and tangible results could be achieved because reforms could be implemented without legislative changes. Also according to �Doing Business in 2007�, among the 11 business registration procedures in total this permit is the most expensive (137 USD) and the second most time consuming procedure (11 days). Two pilot cities in the Visayas, Ormoc and Bacolod, were then chosen due to the strong political will and commitment of the mayors.

4. 09.09.2012 Four - Phased Approach Jan. 2005 Jan.2006 We then followed a four-phased approach at the local level: 1. In the first phase, Diagnosis, we conducted time and motion studies in the two pilot cities. Consultants observed the applicants and documented the process from the perspective of an entrepreneur with respect to (a) steps, (b) time, and (c) requirements. This data, supplemented by interviews on client satisfaction and some statistics provided by the LGU, was our baseline data. In order to validate the findings and recommendations of the time and motion studies we conducted workshops with SMEs in the two pilot cities. As the Local Government Code requires that all enterprises renew their Mayor�s Permit every year in January we had to conduct the time and motion studies in January and thus plan our diagnosis and evaluation phase accordingly. 2. In the second phase, Planning, action planning workshops were conducted with LGU officials, representatives of national government agencies, chambers of commerce and private enterprises. The participants discussed the findings of the time and motion studies and agreed on actions to improve the business registration procedures. To secure the buy-in of all stakeholders and to facilitate peer learning and competition, we invited a representative from another LGU, which had already streamlined its business registration procedures and served as a benchmark. 3. In the third phase, Implementation, in Ormoc a business forum was organized in which about 70 participants from the private and public sector participated. They agreed on a Memorandum of Understanding (MOA) in which they committed themselves to improve the business registration procedures by January 2006. They also established a technical committee composed of representatives of the LGU, DTI, other national government agencies and the chamber of commerce and industry. Both, the MOA and the technical committee have proven to be very important tools for creating momentum and ensuring sustainability of the reform process. unnecessary administrative steps and requirements were removed (e.g. the land and water tax clearance) and post-audit inspections were allowed; a customer service training was conducted process flowcharts were posted Information on the streamlined business registration procedures was published in the local press 4. In the fourth phase, Evaluation, a second time-and-motion study was conducted. At the same time, LGU staff in Ormoc and Bacolod was trained to apply this tool on their own in the future. In addition a written customer feedback survey was carried out with the applicants after they had completed the registration process. The findings of the study including recommendation for further reforms were validated in workshops with representatives of the public and private sector. We then followed a four-phased approach at the local level: 1. In the first phase, Diagnosis, we conducted time and motion studies in the two pilot cities. Consultants observed the applicants and documented the process from the perspective of an entrepreneur with respect to (a) steps, (b) time, and (c) requirements. This data, supplemented by interviews on client satisfaction and some statistics provided by the LGU, was our baseline data. In order to validate the findings and recommendations of the time and motion studies we conducted workshops with SMEs in the two pilot cities. As the Local Government Code requires that all enterprises renew their Mayor�s Permit every year in January we had to conduct the time and motion studies in January and thus plan our diagnosis and evaluation phase accordingly. 2. In the second phase, Planning, action planning workshops were conducted with LGU officials, representatives of national government agencies, chambers of commerce and private enterprises. The participants discussed the findings of the time and motion studies and agreed on actions to improve the business registration procedures. To secure the buy-in of all stakeholders and to facilitate peer learning and competition, we invited a representative from another LGU, which had already streamlined its business registration procedures and served as a benchmark. 3. In the third phase, Implementation, in Ormoc a business forum was organized in which about 70 participants from the private and public sector participated. They agreed on a Memorandum of Understanding (MOA) in which they committed themselves to improve the business registration procedures by January 2006. They also established a technical committee composed of representatives of the LGU, DTI, other national government agencies and the chamber of commerce and industry. Both, the MOA and the technical committee have proven to be very important tools for creating momentum and ensuring sustainability of the reform process. unnecessary administrative steps and requirements were removed (e.g. the land and water tax clearance) and post-audit inspections were allowed; a customer service training was conducted process flowcharts were posted Information on the streamlined business registration procedures was published in the local press 4. In the fourth phase, Evaluation, a second time-and-motion study was conducted. At the same time, LGU staff in Ormoc and Bacolod was trained to apply this tool on their own in the future. In addition a written customer feedback survey was carried out with the applicants after they had completed the registration process. The findings of the study including recommendation for further reforms were validated in workshops with representatives of the public and private sector.

5. 09.09.2012 Key Results The table shows that business registration procedures in Ormoc and Bacolod have been streamlined significantly. In Ormoc, for instance, to register a new business an applicant had to go through 17 steps in 2005 while in 2006 it only takes 10. While in 2005, it took 17 days to register, it now takes only 2 days, and requirements have been cut by half. Further reductions in registration times are expected in both cities for 2007 as additional computers have been installed since January 2006. As a result of these activities, customer satisfaction has improved in both cities. Also, the number of business permits approved during the registration period has increased in both cities: +25% in Ormoc and +10% in Bacolod. Of course, this can only partly be attributed to the greater efficiency of LGU services.The table shows that business registration procedures in Ormoc and Bacolod have been streamlined significantly. In Ormoc, for instance, to register a new business an applicant had to go through 17 steps in 2005 while in 2006 it only takes 10. While in 2005, it took 17 days to register, it now takes only 2 days, and requirements have been cut by half. Further reductions in registration times are expected in both cities for 2007 as additional computers have been installed since January 2006. As a result of these activities, customer satisfaction has improved in both cities. Also, the number of business permits approved during the registration period has increased in both cities: +25% in Ormoc and +10% in Bacolod. Of course, this can only partly be attributed to the greater efficiency of LGU services.

6. 09.09.2012 Increasing the outreach of reforms Peer Learning at the local level Tangible results generated interest of other LGUs Documentation of pilot cities� experiences in short video Publication of good practices in 16 LGUs in multi-stakeholder activity �Bubbling up� lessons learnt into the national policy dialogue Feeding back experiences from the local level to national government agencies, Leagues of Cities, Philippine Chamber of Commerce and Industry Agreement by SME Group to focus on and coordinate activities in streamlining business registration To increase the outreach of the reforms, we started to use two replication mechanisms: (1) peer learning at the local level and (2) �bubbling up� lessons learnt into the national policy dialogue. First, having achieved such tangible results as in Ormoc and Bacolod, other LGUs in the region have expressed their interest in learning from the two pilot cities and replicating the approach taken, which we are currently working on. GTZ has supported DTI�s proposal to document the Ormoc and Bacolod experience in a short video. Additionally, DTI and GTZ launched an initiative to publish a collection of good practices on streamlining business registration procedures in 16 LGUs all over the Philippines (including Ormoc and Bacolod). Other national government agencies, the League of Cities of the Philippines (LCP), and the Philippine Chamber of Commerce and Industry (PCCI) as well as other donors � Asia Foundation, IFC and CIDA � have joined this initiative. The publication will now be distributed in the whole country. Second, the lessons learnt from the two pilot cities were �bubbled up� into the policy dialogue at the national level. This means, we organized several meetings in Manila in order to share of information and experiences involving representatives from DTI, DILG, LCP, and PCCI. We also channeled our experience into the SME Group � a forum where DTI and donors discuss and coordinate their activities � and it was jointly decided to increase the efforts to streamline business registration procedures in the Philippines. The message was also taken up by the DTI Secretary who highlighted the importance of streamlining business registration procedures during the Philippine Development Forum in March 2006. In sum, these activities created awareness and demand for replication in other LGUs and for policy reforms at the national level. To increase the outreach of the reforms, we started to use two replication mechanisms: (1) peer learning at the local level and (2) �bubbling up� lessons learnt into the national policy dialogue. First, having achieved such tangible results as in Ormoc and Bacolod, other LGUs in the region have expressed their interest in learning from the two pilot cities and replicating the approach taken, which we are currently working on. GTZ has supported DTI�s proposal to document the Ormoc and Bacolod experience in a short video. Additionally, DTI and GTZ launched an initiative to publish a collection of good practices on streamlining business registration procedures in 16 LGUs all over the Philippines (including Ormoc and Bacolod). Other national government agencies, the League of Cities of the Philippines (LCP), and the Philippine Chamber of Commerce and Industry (PCCI) as well as other donors � Asia Foundation, IFC and CIDA � have joined this initiative. The publication will now be distributed in the whole country. Second, the lessons learnt from the two pilot cities were �bubbled up� into the policy dialogue at the national level. This means, we organized several meetings in Manila in order to share of information and experiences involving representatives from DTI, DILG, LCP, and PCCI. We also channeled our experience into the SME Group � a forum where DTI and donors discuss and coordinate their activities � and it was jointly decided to increase the efforts to streamline business registration procedures in the Philippines. The message was also taken up by the DTI Secretary who highlighted the importance of streamlining business registration procedures during the Philippine Development Forum in March 2006. In sum, these activities created awareness and demand for replication in other LGUs and for policy reforms at the national level.

7. 09.09.2012 Success factors Political will and commitment of the Mayor Full support of LGU employees, i.e. Business Permits and Licensing Office (BPLO) Chief Participatory process that brings together public and private partners and builds consensus and local ownership Lessons learnt Signing of a MOA as a prerequisite for starting the process to ensure commitment Setting up a technical working group to establish public-private dialogue Bringing in good practices of other LGUs to create competition and secure buy in of all stakeholders (peer learning) �Bubbling up� experiences from the local to the national level to increase outreach of reforms Building up LGUs� capacity to monitor and evaluate the business registration and licensing procedures Our experiences in Ormoc and Bacolod have shown that the success in the two cities largely depends on the following factors: Political will and commitment of the Mayor Full support of LGU employees, i.e. Business Permits and Licensing Office (BPLO) Chief Participatory process that brings together public and private partners and builds consensus and local ownership Further lessons learnt include: Signing of a MOA as a prerequisite for starting the process to ensure commitment Setting up a technical working committee for establishing public - private dialogue Bringing in good practices of other LGUs to create competition and secure buy in of all stakeholders (peer learning) �Bubbling up� experiences from the local to the national level to increase outreach of reforms Building up LGUs� capacity to monitor and evaluate the business registration and licensing procedures Our experiences in Ormoc and Bacolod have shown that the success in the two cities largely depends on the following factors: Political will and commitment of the Mayor Full support of LGU employees, i.e. Business Permits and Licensing Office (BPLO) Chief Participatory process that brings together public and private partners and builds consensus and local ownership Further lessons learnt include: Signing of a MOA as a prerequisite for starting the process to ensure commitment Setting up a technical working committee for establishing public - private dialogue Bringing in good practices of other LGUs to create competition and secure buy in of all stakeholders (peer learning) �Bubbling up� experiences from the local to the national level to increase outreach of reforms Building up LGUs� capacity to monitor and evaluate the business registration and licensing procedures

8. 09.09.2012 CASE STUDY 2: VIETNAMSmall and Medium Enterprise Development Programme Programme start: May 2005, with policy advise activities being carried forward from a previous SME Promotion Project which started in 2003 Overall objective: to improve the competitiveness of private small and medium enterprise in Vietnam Business registration: focus on national level Despite numerous reform, particularly the introduction of the Enterprise Law in 2000, constraints to do business remained The freedom to do business is constrained by business licenses, with h one new license being introduced every week No mechanism in place to monitor the introduction of new business license and the quality of the newly introduced ones

9. 09.09.2012 Support by GTZ Vietnam and Results Achieved Research on business licensing In cooperation with national stakeholders like CIEM, PMRC and VCCI Policy recommendations are locally owned Good combination of international best practices and knowledge on local context

10. 09.09.2012 Support by GTZ Vietnam and Results Achieved A much stronger awareness about business licenses have been raised The change in the mindset of government bodies and their actions in the field of business environment could also be seen International best practices in terms of business licensing are integrated into laws and regulations A a mechanism which requires ex-ante assessment of the impacts (RIA) before any business license is introduced, elaborated and discussed with national stakeholders

11. 09.09.2012 Success Factors The activities should always start at perceived needs of national stakeholders. Donors cannot create national ownership for policy � only strengthened it Involving different stakeholders from the public and private sector and establishing alliances among them is important to build up the momentum for policy reforms Cooperating closely with the media increases the outreach and leverage of donor support

12. 09.09.2012 Conclusions from the Philippines and Vietnam Political will and commitment of the partner government is crucial Donors cannot create ownership for policy � only strengthen it To build momentum for reforms, public and private sector stakeholders need to be involved and alliances established Strong champions should be involved as they bring in knowledge and networks, give credibility to recommendations or demonstrate local ownership To increase outreach, good practices need to be documented, disseminated and replicated Through donor harmonization and alignment leverage of support and outreach of reforms can be increased Looking at the case studies from the two countries, the Philippines and Vietnam, we can draw the following conclusions: Political will and commitment of the partner government is crucial for the reform process Donors cannot create ownership for policy � only strengthen it To build up momentum for reforms, public and private sector stakeholders need to be involved in a participatory process and alliances need to be established In both countries, involving strong champions (e.g. Muntinlupa City in PH, and the Prime Minister�s Research Commission, the Central Institute of Economic Management in Vietnam) was a key success factor. They brought in in-depth knowledge, provide contacts/networks, give credibility to policy recommendations or demonstrate local ownership. To increase outreach, good practices need to be documented, disseminated and replicated. In the Philippines, we documented the experience of our 2 pilot cities and are now using it for peer learning and bubbling up. The case of Vietnam highlighted the importance of comprehensive press campaigns to achieve wide media coverage. Finally, the case studies of the Philippines and Vietnam show that through donor harmonization and alignment the leverage of support and the outreach of reforms to streamline business registration and licensing procedures can be increasedLooking at the case studies from the two countries, the Philippines and Vietnam, we can draw the following conclusions: Political will and commitment of the partner government is crucial for the reform process Donors cannot create ownership for policy � only strengthen it To build up momentum for reforms, public and private sector stakeholders need to be involved in a participatory process and alliances need to be established In both countries, involving strong champions (e.g. Muntinlupa City in PH, and the Prime Minister�s Research Commission, the Central Institute of Economic Management in Vietnam) was a key success factor. They brought in in-depth knowledge, provide contacts/networks, give credibility to policy recommendations or demonstrate local ownership. To increase outreach, good practices need to be documented, disseminated and replicated. In the Philippines, we documented the experience of our 2 pilot cities and are now using it for peer learning and bubbling up. The case of Vietnam highlighted the importance of comprehensive press campaigns to achieve wide media coverage. Finally, the case studies of the Philippines and Vietnam show that through donor harmonization and alignment the leverage of support and the outreach of reforms to streamline business registration and licensing procedures can be increased

13. 09.09.2012 Thank you for your attention! www.smedsep.ph www.sme-gtz.org.vn