55646 POLICY FRAMEWORK PAPER ON BUSINESS LICENSING REFORM AND SIMPLIFICATION INVESTMENT CLIMATE ADVISORY SERVICES WORLD BANK GROUP WB203_PFPBLRS.indd i 5/19/10 11:08:16 PM ©2010 The World Bank Group 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to repro- duce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, the World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. About the Investment Climate Advisory Services of the World Bank Group The Investment Climate Advisory Services of the World Bank Group (IC) helps governments implement reforms to improve their business environment, and encourage and retain investment, thus fostering competitive markets, growth and job creation. Funding is provided by the World Bank Group (IFC, MIGA, and the World Bank) and over fifteen donor partners working through the multi-donor FIAS platform. The findings, interpretations and conclusions included in this note are those of the author and do not necessarily reflect the view of the Executive Directors of the World Bank Group or the governments they represent. WB203_PFPBLRS.indd ii 5/19/10 11:08:19 PM Table of Contents Executive Summary ............................................................................. v Introduction ......................................................................................... 1 Government regulation ........................................................................ 3 The broader context--government regulation..........................................................3 Why regulate--rationale for government regulation? ..............................................3 Regulatory interventions­from state ownership to competitive markets .......................4 Good practice regulatory requirements .................................................................5 What are the features of good regulatory design? .................................................5 What are the features of good regulatory administration and practice? ....................6 But `good practice' regulatory requirements often not achieved? ..............................7 Licensing: A powerful but potentially damaging regulatory intervention.. 8 What is a license?...............................................................................................8 Four features of the licensing process ..................................................................10 Potential benefits of licensing as a regulatory tool ................................................11 Potential disadvantages of licensing ...................................................................11 Licenses and inspections are closely linked ..........................................................12 Licensing, fees and charges ...............................................................................12 How to reform? A framework for comprehensive business licensing reforms.................................................................. 15 Context for reform: Many licensing systems `out of control' ....................................15 The need for comprehensive reform ....................................................................16 The basic approach ..........................................................................................16 An explicit political mandate ensures accountability .............................................17 Institutional drivers is important for success ..........................................................17 Reversal of the burden of proof: .........................................................................17 Quantifying burdens and setting a target helps monitor progress ...........................17 Simple and transparent review criteria ................................................................18 Simple review criteria used in a number of licensing reforms include: .....................18 Consultation and validation ...............................................................................18 Bundled implementation? ..................................................................................19 Ensuring sustainability: Regulatory Impact Analysis (RIA)? ......................................20 Ensuring sustainability: E-Registry .......................................................................20 How do it: Licensing reform step by step .............................................................20 What does success look like?: monitoring and evaluation of licensing reviews and reforms........................................................ 22 Development and application of a comprehensive M&E framework for business licensing ........................................................................................22 Determining the significance of licenses and gains from licenses reform ..................23 Bibliography ...................................................................................... 25 iii WB203_PFPBLRS.indd iii 5/19/10 11:08:19 PM List of Boxes Box 1: A Simplified Spectrum of Regulation ............................................................5 Box 2: Good Practice' Regulatory Requirements......................................................6 Box 3: Permits and Licenses No Need to Differentiate..............................................8 Box 4: Can Fees and Charges be used to Raise Revenue for Broader Policy Objectives? ......................................................................13 Box 5: Why licensing reforms are difficult? ..........................................................16 Box 6: Business registration and licensing reform: similarities and critical differences ...................................................................................21 iv WB203_PFPBLRS.indd iv 5/19/10 11:08:19 PM EXECUTIVE SUMMARY A well functioning regulatory system is an essen- unnecessary costs and risks for developing coun- tial component of modern society. Where regula- tries. For example, licensing can impede healthily tions work well, they enhance governance and competition and the operation of effective mar- promote stability, progress and prosperity. Licens- kets, unnecessarily raise business costs and con- ing is a commonly used and prescriptive type of sumer prices, generate scope for corruption and regulation which affects specified businesses and be misused to collect revenues. Many licensing occupations by regulating entry into markets and systems have also proliferated over time and conduct within markets. Licenses--which some- grown exponentially beyond control or even mea- times include use of permits, certification and surement. For these reasons, business licensing notifications--typically impose on businesses a reform and simplification is an important part of range of conditions, obligations and rights. the International Finance Corporation (IFC's) Breaches of licensing conditions typically involve Business Enabling Environment (BEE), which is imposition of sanctions by the relevant regulatory provided by the World Bank Group (WBG) to authority, such as a fine or revocation of permis- support regulatory reform and modernization in sion to perform an activity. developing countries. This paper is part of the supporting activities to develop and communi- There are often good reasons for government to cate the key features and processes underpinning regulate markets and businesses, including successful Business Licensing Reforms. addressing market failures. Indeed, licensing as a form of regulation has a number of important Reforming business licensing can generate signifi- advantages, such as excluding businesses from cant economic, social and environmental benefits entering markets where they might generate for developing countries but can also be difficult, health, safety, security or environmental risks. complex and challenging. This paper argues that often the best way to reform licenses is to under- However, licensing is also often misused and/or take comprehensive licensing reforms. This poorly administered, generating significant and includes obtaining top down high level political v WB203_PFPBLRS.indd v 5/19/10 11:08:23 PM commitment to ensure accountability, establishing implemented alongside related reforms, such as institutional drivers, such as a private-public work- establishing a light Regulatory Impact Analysis ing committee and secretariat. It also suggests that (RIA) system. RIA can be used to screen and pro- the regulators responsible for licenses be required vide quality control for new licenses, so that bad to justify the continuation of each license they licenses or regulatory practices do not re-emerge. administer according to a simple and transparent Establishing an electronic registry which docu- criteria which has been endorsed at the political ments all licensing requirements and can be level. By reversing the burden of proof, regulatory accessed easily by business and the community agencies--the `owners' of licenses--have strong can also be a part of a broader regulatory and incentives to identify all licenses they administer licensing reform program. and consider whether such licenses can be justified because they generate net benefits for society. This paper provides advice on how to reform licenses, including project preparation and diag- The importance of meaningful, inclusive and nostics, establishing a focused reform program, timely consultation with stakeholders is also reviewing existing licenses, reforming licenses highlighted in this paper. Consultation and other and establishing monitoring and evaluation pro- transparency measures can help build public con- cesses to measure the impacts of licensing reform. fidence and goodwill, as well as constituencies for This paper is supplemented by a `how to' manual successful and sustainable licensing reforms. which provides detailed advice and guidance However, licensing reforms which are in the about to reform business licenses. broader community interest should not require stakeholder consensus, since licensing reforms Advice provided in this paper on how to reform will often generate opposition from institutions licenses and licensing systems can also be applied and individuals who derive private benefits from to other types of regulation, such as Acts of Par- existing licensing arrangements. liament, decrees and subordinate regulations. Furthermore, such reforms can be applied at the It is often preferable to bundle licensing reforms central government level, state government level into a single comprehensive reform program. In (where applicable) and at the local government/ addition, comprehensive licensing reforms can be municipal level. vi WB203_PFPBLRS.indd vi 5/19/10 11:08:23 PM INTRODUCTION Business licensing reform and simplification is a Part One of this paper provides a contextual `core product' under International Finance Cor- overview of key issues associated with govern- poration (IFC's) Business Enabling Environment ment regulation. The rationale for government (BEE) Business Line which is offered by the regulation (including licensing) is discussed, World Bank Group (WBG) to support regulatory along with a description of the benefits and fea- reform in developing countries. This paper is part tures of good regulatory design. This is followed of the supporting activities to develop and com- by a commentary about the costs and problems municate the key features and processes under- generated by poor quality regulatory design and pinning successful Business Licensing Reforms in poorly administered regulatory systems. developing countries. Part Two discusses the features of business This paper includes an overall introduction to licenses, the potential advantages and disadvan- the uses (and abuses) of business licenses, and to tages of licensing and a discussion of the use of the way business licensing reforms can be orga- licensing fees and charges. nized. It also provides a broad overview and framework for licensing reforms. This paper is Part Three provides an overview of `how to' supported by more detailed case studies of licens- reform business licenses and licensing systems. It ing reform in particular sectors, and other guid- summarizes broad approaches to reform, such as ance for facilities and field operations. This using a comprehensive `top-down' approach to includes a detailed manual on `how to' review reviewing the stock of existing licenses, or where and reform licenses and also information about appropriate using a more targeted approach how to apply effective and insightful Monitoring which focuses on particular types or categories of and Evaluation (M&E) to licensing reviews and licenses. The importance of ensuring that licenses reforms. are documented in a transparent manner and 1 WB203_PFPBLRS.indd 1 5/19/10 11:08:24 PM that there are effective quality control process for simplification programs. This includes develop- new licenses, to stop bad licenses from reappear- ing an M&E framework and measuring the sig- ing, is also discussed. The four key elements of nificance and effects (e.g., the frequency and licensing reform and simplification are then con- administrative burdens) generated by different sidered, including project preparation and diag- types of licenses. This is followed by a discussion nostics, establishing a tailored and focused reform of the use of performance indicators including, program, reviewing existing licenses and reform- outputs (such as the number of entities receiving ing licensing systems. A more detailed discussion in-depth advisory IFC services), outcomes (such and guidance on `how to' reform licenses in pro- as the number of licenses repealed or reformed vided in a separate manual. and reductions in burdens on business) and impacts of licensing reforms (such as improve- Part Four of this paper focuses on Monitoring ments in investment and employment following and Evaluation (M&E) of licensing reform and licensing reforms). 2 WB203_PFPBLRS.indd 2 5/19/10 11:08:25 PM GOVERNMENT REGULATION The broader context--government addressing identified market failures or achieving regulation other specific `public interest' objectives. It is broadly accepted that the following factors justify Governments seek to achieve a wide range of government regulation: social, economic, environmental, regional and equity objectives through spending, taxation and externalities--where unregulated or poorly regulation. Government regulation provides rules, regulated markets generate uncompensated standards and guidance to individuals and organi- benefits (public safety) or costs (such as pol- zations. A well functioning regulatory system is an lution) to others; essential component of modern society. Where regulations work well, they enhance governance public goods--where individuals who have and promote stability, progress and prosperity. not contributed to production cannot be prevented from consuming that good, or A well functioning regulatory system provides a where consumption does not reduce ability stable environment for business by reducing of others to consume. Examples of public transaction costs, providing certainty and encour- goods include broadcast/free to air television aging healthy competition, thus enhancing inter- and street lighting; national competitiveness, investment, growth information failures--where parties to a trans- and employment. action have incomplete or flawed information about costs, benefits and risks. Examples include a transaction where one party knows Why regulate--rationale for more than the other and can include insurance, government regulation? other financial products and second hand cars; The basic rationales for various types of govern- natural monopoly--where the nature of a ment regulation (including licensing) include product can result in one producer (or a 3 WB203_PFPBLRS.indd 3 5/19/10 11:08:26 PM small number of producers) exercising non- markets. Process and prescriptive regulations, transitory market power to the detriment of sometimes referred to as `command and control' consumers. In such cases licenses can be used regulations, are at the other end of the spectrum to control competition `for a market'; and of regulation, where governments exert a high level of direct control over the operation of mar- public interest objectives--which can include kets and businesses operating within particular a wide range of specified equity or other markets. It is at this most prescriptive end of the broader community preferences, such as pro- spectrum where governments often apply regula- tection of resources, reducing greenhouse tory restrictions on competition and licensing emissions or protecting persons who have a (see Box 1). In other words, licensing is typically disability. part of the `command and control' end of the broad spectrum of government regulation. It is generally not appropriate to introduce and operate regulatory systems for other reasons, such as to unnecessarily restrict competition to protect favoured businesses interests or generate tax rev- Regulatory interventions­from state enues. Furthermore, it is generally accepted that ownership to competitive markets the presence of market failure or public interest In the late twentieth century there was a growing objectives only justifies government regulation consensus that state ownership of the means of where the benefits of regulation exceed the costs production was a highly inefficient and usually of the market failure and also where regulation is ineffective way of achieving broader social, eco- the best (e.g., most efficient) way of achieving nomic and environmental objectives, especially policy objectives. in the medium and longer terms. Increasingly, Needless to say, the challenges involved with the focus of governments has been to establish determining appropriate levels of regulatory inter- regulatory institutions, processes and regulations ventions include different interpretations of what which support the operation of effective markets, constitutes public goods, public interest, infor- which in turn creates the wealth and additional mation failures, etc. Furthermore, societies often taxation revenues needed to achieve broader soci- attach different values to collective interests, pro- etal objectives. tection of individuals against `market failure', and the importance of individual and entrepreneurial Governments use a range of regulatory interven- opportunity. tions to achieve effective markets. For example, economic regulation involves intervening directly The spectrum of regulation for competition within in the operation of markets. Social regulations (and between) markets includes at one end broad aim to achieve public interest objectives such as framework regulation governing the operation of protecting health, safety, the environment and all markets, such as competition and tax policies. social cohesion. In addition, the application of Self regulation is also being used increasingly and such regulations involves governments employ- successfully in a range of sectors. For example, ing administrative regulations--sometimes called Hazard Analysis Critical Control Points (HACCP) `red tape'--which includes paperwork and and Global GAP impose stringent requirements administrative formalities through which govern- for food producers entering a market. ments collect information on the operations of businesses (OECD 1997a). The spectrum of regulation then includes a range of regulatory approaches and tools which pro- The increased focus of governments on regula- gressively increases government control over the tion has also resulted in greater attention being operation of businesses operating in particular given to regulatory governance, management and 4 WB203_PFPBLRS.indd 4 5/19/10 11:08:26 PM Box 1: A Simplified Spectrum of Regulation1 Competition within and between markets Market-driven Government- No formal outcomes driven outcome activity Free market, Education Private sector Market Performance Process and Ban on activity framework campaigns voluntary incentives and outcomes prescriptive laws such and regulation or driven by based regulations, as competition mandatory co-regulation government regulations specifying policy, protection information (taxes, inputs, of property rights, disclosure auctions, processes etc. to enhance tradable and rules consumer permits, choice etc) Licensing and restrictions on competition Source: OECD 1997b, pp. 221. reform which refers to changes which aim to In such cases the regulatory system will perform improve the quality of existing and new regula- poorly. The objectives of regulation will not be tion, as well as regulatory processes and institu- achieved (or only be partly achieved) and regula- tions. tions will generate significant unnecessary costs and burdens in the country/region. Where regu- latory systems and processes are weak remedial Good practice regulatory action should be undertaken. requirements As noted above, a well functioning regulatory sys- What are the features of good tem is characterized by regulations having a clear regulatory design? rationale and objectives, such as addressing speci- fied market failure and/or the achievement of other Well designed and high quality regulations have a policy outcomes. In addition, `good practice' out- number of key features, including: comes require at the policy level high quality regu- latory design and also high quality regulatory minimum requirements used to achieve administration and practice, as described and sum- objectives; marized in Box 2. Where good practice regulatory outcomes are achieved, a regulatory system will be not being unduly prescriptive in specifying characterized by both high quality regulatory how businesses should operate; design and regulatory administration/practice. However, regulatory systems are often character- accessible, transparent and accountable; ized by weak regulatory design and/or administra- tion/practice. integrated and consistent with other laws/ regulations (including international, national 1 This box describes the spectrum of regulation government and sub-national regulations); for competition within and between markets. It does not include regulations governing `competition for the market', where firms have market power (e.g., monopoly or oligop- communicated effectively to business and oly, etc). other stakeholders; 5 WB203_PFPBLRS.indd 5 5/19/10 11:08:26 PM Box 2: Good Practice' Regulatory Requirements Poor quality High quality regulatory regulatory administration administration? and practice? High quality `Good practice' Good regulatory design, regulatory regulatory outcomes but poor quality regulatory design? administration (e.g., inspections undertaken by regulator generate unnecessary burdens on business) Poor quality Good regulatory Poor quality regulatory regulatory administration, but design and regulatory design? poor quality regulation administration (e.g., (eg., regulation is unduly regulations poorly conceived, prescriptive and onerous, administered and enforced by but regulator is well regulators) managed and efficient) minimizing administrative compliance bur- Governments, the community and key stake- dens on business; and holders (such as business and consumers) expect regulators to be effective, efficient and transpar- enforceable. ent in enforcing regulations. These features summarize a more detailed regula- The key features of good regulatory administra- tory quality `checklist' which has been developed tion and practice include: and applied by the OECD and several national governments. This checklist can be used as a pre- sound and transparent governance; liminary diagnostic tool to identify the quality of regulatory design, including specific areas where effective information management; regulatory design is deficient and requires reme- good relationship management with stake- dial action. Please see section World Bank Group holders; (2010) and also the `how to' review and reform licenses manual, for further information regard- adequate resourcing of regulatory institu- ing this checklist and for detailed information tions; regarding how to review and, where appropriate, reform licenses. capacity to efficiently and effectively receive applications from business and monitor com- pliance; What are the features of good regula- ability to address non-compliance; and tory administration and practice? provide adequate response to adverse events. Regulatory departments, ministries and agencies administer regulatory regimes such as licensing These features summarize information pro- using prescribed powers, authority and resources. vided in a more detailed `checklist' which has 6 WB203_PFPBLRS.indd 6 5/19/10 11:08:27 PM been developed and applied by the OECD and But `good practice' regulatory several national governments. This checklist requirements often not achieved? can be used as a preliminary diagnostic tool to identify the quality of regulatory administra- In practice, the volume of regulations (as measured tion, including specific areas where regulatory by the number of regulations, number of business administration is deficient and requires reme- affected etc) is often enormous. There are often dial action. Please also see World Bank Group well founded concerns about the quality and com- (2010) and also the `how to' review and reform plexity of many regulations and how regulations licenses manual, for further information about are administered and enforced. Ill conceived, this checklist and for information regarding designed or administered regulations can create how to review and, where appropriate reform unnecessary barriers to trade and commerce, licensing systems. impede innovation and increase costs to business and prices paid by consumer, thus unnecessarily dampening economic activity, competitiveness, productivity growth and wealth creation. 7 WB203_PFPBLRS.indd 7 5/19/10 11:08:27 PM LICENSING: A POWERFUL BUT POTENTIALLY DAMAGING REGULATORY INTERVENTION What is a license? Box 3: Permits and Licenses Business licensing is a commonly used form of No Need to Differentiate regulation which affects specified businesses and occupations by regulating entry into markets and Permits are often a subset of licenses. Permits can conduct within markets. Licenses typically impose include governments providing business with permis- on businesses a range of conditions, obligations sion (often in the form of a certificate or document) to and rights--often in the form of a specific license, enter a market and/or undertake a specified activ- ity. Permits can also relate to the use of identified permit or concession. Breaches of specified condi- equipment or premises, or approval for particular tions typically involve imposition of sanctions by one-off activities (such as commencing the construc- the relevant regulatory authority--such as a fine tion of a building). Permits are used in most countries or revocation of permission to perform an activity. and are often used in the former Soviet Union and Licensing does not include general registration of focus on providing formal approval to perform a businesses, including for business name, taxation particular defined activity. and statistical purposes. Permits are usually As noted above, the prior approval stage of licens- (although not always) a sub-set of licenses and typ- ing (including permits) restrict competition and can ically focus on providing regulatory approval for a be a particularly costly form of regulatory interven- tion. From a business point of view permits and defined activity (see Box 3). Business registration licenses constitute administrative barriers prior to the and licensing reforms have many similarities, but commencement of a business activity. From a regu- also critical differences. That said, from the end lation reform perspective, it also makes little sense user perspective (e.g., the entrepreneur wanting to to differentiate between licenses and permits. The register a business and commence business opera- differences between the two are rhetorical. Indeed, tions) business registration and licensing should be there have been cases of reforms involving the elim- ination of permits, with the prior approval require- seamless and integrated (see Box 6 for further ments of these permits resurfacing again shortly information). after as `licenses'. 8 WB203_PFPBLRS.indd 8 5/19/10 11:08:27 PM Licensing can be distinguished from other types Unnecessary restrictions on competition and of regulatory requirements by usually obliging highly prescriptive licenses can be very damaging the regulated parties to obtain a certification of to the operation of effective markets. They compliance with regulatory obligations prior to impede competition, innovation in producing the commencement of a given business activity. and delivering goods and services, and limit the From an economic and business point of view, capacity of firms to respond to external shocks licensing is a potentially much more costly and (such as significant and unexpected changes in potentially damaging regulatory intervention input prices, market conditions and/or changes when compared to other types of regulation (such consumer preferences etc). All of these outcomes as broadly applied competition law and account- reduce significantly levels of productivity, incomes ing rules, or other `lighter' forms of regulation and wealth creation. etc). This is because licensing requirements not only impose regulatory compliance burdens (as As is described in further detail below, licensing do most types of regulation), but also can restrict and the associated compliance requirements--as healthy competition by establishing significant with other types of regulation--can also often and unnecessary entry barriers to particular eco- offer significant discretion to the issuing authori- nomic activity and markets. These restrictions ties which may lead to abuse, corruption, uncer- can include: tainty and other risks. grant exclusive rights for a supplier to pro- Cognizant of these constraints and potential neg- vide a good or service; ative effects of licensing, most governments seek to limit licensing to a limited number of specified affect the ability of some types of firms to sectors and activities where prior control of the participate in public procurement; behavior of businesses is deemed necessary to achieve important economic, social, safety, secu- significantly alter costs of entry or exit to a rity or environmental outcomes. market; and/or The criteria and policies guiding the sectors and create a geographic barrier to the ability of activities which should be subject to licensing businesses to supply goods or services, invest vary widely between countries. Indeed, there is or supply labor. no definitive list of activities that should or should not be licensed. That said, many developed and Licensing can restrict or reduce the ability of developing countries officially limit licensing to businesses to compete and innovate through: business activities affecting the following areas: control or substantially influence the price at provision of services and goods relating to which a good or service is sold; human and animal health, including the man- ner of sale of particular goods and services; altering the ability of suppliers to advertise or market their products; safety or specific risks to human life, such as the sale of pharmaceuticals, medicines and setting prescriptive standards for product/ fireworks. This can also include the produc- service quality that are significantly different tion, transport, storage, handling and inspec- from current practice; and/or tions of dangerous goods; significantly altering costs of some suppliers networked services, such as telecommunica- relative to others. tions, energy and the financial sector; 9 WB203_PFPBLRS.indd 9 5/19/10 11:08:29 PM gambling and related activities; national security (e.g., use and storage of weapons or other sensitive goods). specified financial services; security, businesses involved in provision of Four features of the licensing process law and order services, internal security and national security; The features of licenses as well as the process of obtaining and administering licenses varies use of scarce resources, such as natural greatly between and within different countries. resources and radio frequencies; and That said, licensing typically involves one or more of the following four broad features: environment, including protection of specific environmental amenity (such as use of (1) Search and application: `Search' where national parks and reservations). businesses identify regulatory requirements that apply to them, by visiting the offices of Specific examples of business activities which tra- regulators, searching the Internet, telephon- ditionally fall within this definition of licensing ing or e-mailing relevant officials etc. `Appli- can be found at World Bank Group (2010) and cation' is where businesses provide specified include: information (often after completing a range construction; of specified documents/forms and provid- ing supporting evidence, etc) to a regulator, business activities requiring zoning and/or to apply for a license to conduct specified operating from specific locations; business activities which are often in a par- ticular sector and for a defined period of professions, such as doctors, lawyers and time (e.g., one or two years). In some cases, engineers etc; businesses applying for a license also pay a fee or charge to the regulator which is mining exploration, extraction and transpor- responsible for issuing and administering tation; licenses; establishing and operating a bank or financial (2) Prior approval to operate which require services; specified conditions to be met: The regula- tor receives the business application for a importing, exporting or trade in defined license, assesses and verifies the application, types of goods and services; ensures specified conditions have been met and provides formal approval to a business to use of particular equipment or production, operate in a specified sector. This can include transport, storage, handling and sale of speci- notification, where business informs a regu- fied materials (such as explosives, dangerous lator that it is in compliance and can then chemicals or pesticides); legally deliver a good or service; discharging gas, liquids or solid waste; and (3) Conditions: Where businesses are expected to comply with standards, conditions and other requirements affecting doing business requirements specified in the license, some- in particular sectors or for specified activities, times including payment of a regular fee or including those which impact directly on charge. These can often be very onerous for 10 WB203_PFPBLRS.indd 10 5/19/10 11:08:29 PM business and generate significant administra- telecommunications spectrum, forests or tive, compliance and economic costs. License fisheries; and conditions can be applied prior to approval and/or after approval has been granted by the licensing conditions can often be modified regulator; and relatively easily resulting in adaptable and responsive regulation (including for sectors (4) Enforcement: Regulator enforces specified such as telecommunications where technolo- license conditions, standards and require- gies are changing and evolving rapidly). ments through a variety of measures. These can include screening processes prior to approval (e.g., verification of the informa- Potential disadvantages of licensing tion provided) and verification processes after the license has been issued, such as However as indicated above there are also signifi- audits and inspections etc. Enforcement cant costs and inherent risks which are often mechanisms such as inspections can also associated with the use of licenses to obtain policy generate significant and often unnecessary goals. In most countries poor business licensing administrative, compliance and economic practices are generally accepted as a serious regu- costs on business. latory constraint to the business enabling envi- ronment. Direct costs on business can include unnecessary duplication and inconsistencies, See World Bank Group (2010) for further infor- delays, uncertainties and formal (and informal) mation and examples of the specific issues and compliance activities (including administrative, challenges related to these licensing steps. compliance costs and out of pocket expenses) associated with obtaining a license and comply- ing with license requirements. Indirect costs on business and the broader community include Potential benefits of licensing as a lower levels of investment and economic activity, regulatory tool revenue foregone, lower employment, skills Developed and implemented appropriately, development, reduced technology transfer and licenses as a regulatory tool offer a number of economic growth. In sum, the key risks and costs potential benefits, including: which can be generated by licensing include: unnecessarily restrict entry into a market the application and notification component and/or competition within a market; of the licensing process allows governments to identify, verify and contact businesses; providing barriers to businesses operating in the informal sector moving to the formal prior approval allows governments to test sector; businesses and exclude those unlikely to meet minimum standards, such as businesses or severely limit the supply of important goods business activities which generate significant and services (e.g., taxis or medical services); health, safety, security, environmental or result in standards being unnecessarily high other costs and/or risks; and otherwise distortive; licenses can allow the controlled use of valu- be costly and/or difficult for governments to able and scarce community resources, such as administer and properly enforce; and 11 WB203_PFPBLRS.indd 11 5/19/10 11:08:30 PM licenses can be misused to provide a highly licensing requirements, often through the use of inefficient and costly way of collecting sanctions for non-compliance (such as fines, tem- revenue. porary or permanent revocation of a license etc). In summary, licensing can be a form of protec- Inspections of businesses and/or their activities tion that benefits certain officials (in the form of are a commonly used way for verifying business bribes etc) and also businesses where licenses compliance and also can be used as a sanction for ensure that they do not face healthy competition previous non-compliance with licensing condi- from other businesses. Such protection is pro- tions. As such, they are an important risk man- vided at the expense of other businesses (such as agement tool for regulators administering those operating in the informal economy); con- licenses. However, from the perspective of busi- sumers (who pay higher prices have fewer choices); ness, inspections can also generate unnecessary the broader society (in terms of lower levels of uncertainty and risks --including that inspectors wealth creation, investment, employment and could solicit bribes and/or abuse discretionary economic activity; and governments (in the form powers etc. of lower taxation and other revenues). When reviewing and reforming licenses and Furthermore, the discretion often provided to licensing systems, particular attention should be officials in issuing, implementing and interpret- paid to the role of inspections. Inspections should ing licensing criteria can lead to a mushrooming maximize compliance with licensing requirements of licenses and associated compliance burdens for by focusing on high risk areas and activities. This businesses. For example, in many developing means that following licensing reforms, inspec- countries several regulators operating at different tions activity could be focused and for some busi- levels of government impose the same (or similar) nesses involved in high risk activities inspections licensing obligations on business, collecting fees may increase. However, in all cases, licensing and charges etc. reforms should aim to minimize uncertainty and unnecessary costs for business (including scope As with other all other forms of regulation, licens- for corruption) generated by inspections (IFC ing should only be used where net benefits are gen- 2006b). erated with its use and where licensing is the best way of achieving broader specified objectives. Please see World Bank Group (2010) for infor- Licensing, fees and charges mation on policy and regulatory alternatives to licensing. Licensing can sometimes involve regulators imposing fees or charges to issue, administer and/ or revalidate licenses. In principle, the transparent Licenses and inspections are closely imposition by the licensing regulator of fees and linked charges can be appropriate to recover the admin- istrative costs to government of delivering that As discussed above, licenses and licensing systems license service (e.g., on a cost recovery basis). are usually characterized by processes which verify whether businesses are complying with licensing However in practice problems often occur when conditions, such as reporting requirements, prod- licensing authorities--often at the local govern- uct testing and inspections. Furthermore, licensing ment level--use their constitutional or otherwise is also associated with enforcement processes, which legally secured mandate to impose unnecessary are designed to encourage business to comply with licensing requirements on businesses and/or use 12 WB203_PFPBLRS.indd 12 5/19/10 11:08:30 PM the licensing transaction to raise revenue in excess of reasonable costs incurred by governments in Box 4: Can Fees and Charges administering a licensing system. be used to Raise Revenue for Broader Policy Objectives? In Zambia, for example, local governments issue business licenses (with associated fees) to finan- There may be cases where the imposition of higher- cial institutions, law firms, accounting firms, than-full cost-recovery license fees could be justified. architects, human resource practitioners etc. This could occur where those licenses generate These licenses are based on local government's direct benefits for the business receiving the license, general authority to impose levies. However, all such as a license accreditation for provision of specified medical services resulting in business the regulated entities are already regulated by being able to charge much higher prices etc. Fur- the respective professional regulatory bodies thermore, fees and charges may be appropriate and also through other general and specific reg- where particular businesses generate negative ulations and licenses applying to these business effects on the community, such as a factory generat- activities.2 Licenses issued for the use of scarce ing large amounts of pollution. resources, such as use of timber or resources Where licenses are used to ration the use of scarce or mining activity, can also involve imposi- community resources (such as access to spectrum tion of high fees which seek to raise additional on the airways), then fees and charges can recover monopoly profits generated (although many coun- revenue. tries achieve the same outcome more efficiently and effectively through the broader taxation system, The imposition of what is de facto taxes `dis- through royalties or a resource rent tax). guised' as license fees and charges create costs Where licenses generate broader benefits for the and a high level of uncertainty among busi- community (such as enhanced health, safety or nesses. Moreover, the use of licensing to raise security outcomes) then imposing licensing fees and revenue for local (and national) authorities is charges will generally be inappropriate and impose generally recognized as an inefficient way to a wide range of costs on the community. Indeed, in raise revenue compared to broader tax sys- such cases license fees and charges essentially impose a `tax' on services provided by business tems. That said, there may be cases where which benefit the broader community. authorities' imposition of fees on business In principle, where there is a broader policy objec- above cost recovery can be justified, as noted tive such as collecting monopoly profits or improv- in Box 4. ing health, safety or security, then license fees and charges can be applied in the short term as a tem- However, in practice these conditions are porary measure where: unlikely to be met, especially where there is a revenue collected generates identifiable health, functioning broadly based taxation system in safety or security benefits for the community place. Indeed, in this situation the taxation sys- which clearly exceed the direct and indirect tem should be strengthened so that inefficient costs on business and the community of collect- and costly licensing fees and charges can be ing license fees and changes; and wound back over time. licensing revenues are collected more effectively and at lower cost than broader taxation mea- In sum, good and recommendable practices when sures (such as royalties for access to scarce it comes to licensing and revenue raising are clear. resources or consumption taxes). Licenses should generally not be used as vehicle to raise revenue above cost recovery because it is 2 The ongoing business licensing reform supported by FIAS a highly inefficient revenue collection mecha- aims at streamlining licensing practices in Zambia, includ- ing the elimination of duplicative regulatory interventions nism, and because it imposes great uncertainty as the above mentioned. on licensed businesses. 13 WB203_PFPBLRS.indd 13 5/19/10 11:08:30 PM In practice, however, governments--and local which the removal of inefficient (e.g., local gov- governments--are often left with few other choices ernment) licensing/revenue raising practices are and tools to raise revenue to fund necessary public complemented with efforts to compensate the services (some of which may be imposed by the local governments, and to improve revenue collec- national government). A clean cut removal of local tion mechanisms, such as through a local business governments' access to raise revenue through tax and/or revenue transfers from a central govern- licenses can have very damaging effects, simply ment etc. because the revenue flow funding important ser- vice provisions falls away. From a regulatory reform These issues are dealt with in further detail in the perspective, the practical implication of these cir- World Bank Group (2010). cumstances is to ensure a parallel reform process in 14 WB203_PFPBLRS.indd 14 5/19/10 11:08:30 PM HOW TO REFORM? A FRAMEWORK FOR COMPREHENSIVE BUSINESS LICENSING REFORMS The previous two sections have described licensing Context for reform: Many licensing in the context of other regulatory interventions, systems `out of control' and have defined some of the features -- including benefits and challenges--of business licensing. Regulatory systems and licensing practices in This section considers approaches to reforming many countries have grown beyond quality con- business licenses. As noted above, while the focus trol or even measurement. Kenya is a case in of this paper is the reform of licenses, these key point, where in 2006 a study of licenses identi- approaches can be employed beyond licensing fied around 300 licensing requirements. Yet the and be used to reform other types of existing true scope of licensing regulation was far larger, regulations. because a subsequent comprehensive inventory found well over 1 300 business licenses and asso- Licensing reviews and reforms will often be imple- ciated fees imposed by more than 60 government mented through joint IFC Facilities-Foreign agencies and 175 local governments. Further- Investment Advisory Service (FIAS) projects. In more, regulators were continually producing new some cases FIAS will take the initial lead in proj- licenses. Similar findings have been made in a ect design, implementation and M&E. How- range of other countries.3 ever, while projects will be carried out in close cooperation, they will increasingly be under the leadership of IFC Facilities, who are well placed to undertake ongoing engagement with the cli- 3 In Moldova, estimates had indicated there were 400­500 business regulations in 2008. An inventory exercise found ents and maintain momentum for reform over 1,300. In Croatia, 300 procedures were initially identified ­ the long haul. the total came to almost 1,500 issued by 68 regulators. 15 WB203_PFPBLRS.indd 15 5/19/10 11:08:31 PM As noted above, one of the main reasons for the The need for comprehensive reform mushrooming of licenses is that ministries and regulatory bodies, including at local levels, often Many countries have launched regulatory reforms have a direct financial interest in creating new targeted at a few priority regulatory constraints, licenses and business fees because these revenues partly in the hope that small reforms will build a support staff salaries and provide increased momentum for broader regulatory reform. Such opportunities for corruption. These factors can limited reforms are often based on a belief that impede reform and improvements to licenses. In larger reforms are not possible in regulatory sys- addition, there are a range of broader and generic tems that are highly captured by vested interests constraints to licensing reform, cf. Box 5. and resistant to change. Yet small reforms within a large and expanding Box 5: Why licensing reforms regulatory system will not substantially nor sus- are difficult? tainably improve the overall business environ- ment. This is because reforms aimed at single There are a range of barriers to the development of processes and rules will never catch up with the good regulatory and licensing practices, which can productive capacities and incentives of govern- include one or more of the following factors: ments to create and apply new or amended regu- ideology, competing values and/or rigid ways lations, licenses, fees, charges and controls. of thinking about public policy issues and prob- lems; The way to achieve successful regulatory reform political--electoral, partisan, departmental or is often to focus on system-wide regulations, reg- regional factors; ulatory institutions and processes. For this rea- organisational/governance--inertia, group think, son, the approach to business licensing advocated vested interest and/or inadequate consultation under this project is based on ambitious and with the community and stakeholders; broad reforms that will produce large short-term information overload or poor quality information pay-offs, but also create systemic improvements about objectives, options, impacts and risks to how the government regulates into the future. and/or competing advice; In other words, when well organized and imple- decisions not based on rational evidence based mented, business licensing reform can provide criteria, such as emotiveness and/or overly early results and generate political support for hasty decisions; broader and systematic reforms. economic factors, including governments and ministries having limited resources, skills, capa- bilities and powers; and poor timing (pending elections, military coup, The basic approach civil conflict etc). The approach to business licensing reform out- Each of these factors (or combinations of two or lined here builds upon a method pioneered initially more of these factors) can potentially generate a by Sweden in 1984, further developed by middle- wide range of negative regulatory and licensing outcomes, including simple cash corruption/out of income countries such as Hungary, Mexico, and pocket expenses, regulatory capture, creation of Korea in the 1990's, and more recently adapted to unnecessary market restrictions (eg., barriers to transition and developing countries such as entry) and resistance to reform. They can potentially Moldova, Ukraine and Kenya. make the task of reviewing and reforming licenses a very challenging, complex and medium to long In essence the approach advocates a comprehen- term exercise. sive, top-down, and institutionalized approach to 16 WB203_PFPBLRS.indd 16 5/19/10 11:08:32 PM licensing reforms. Through this approach, reforms established. This also applies for business licensing are driven forward by an explicit political man- reforms. Experiences from previous and ongoing date, if possible also by a quantitative target for pilots have seen significant benefits from private- the reform, and by strong incentives for regulat- public working committees (often led by a strong ing agencies to participate constructively in the private sector chair) with the support of a small review process. Each of these components is but skilled staff secretariat. described below. See World Bank Group (2010) for examples of mandate, compositions and impacts of Business An explicit political mandate ensures Licensing Reform Working Committees. accountability A high level political commitment is essential to Reversal of the burden of proof: successfully implement this approach. At the early stages of reform this could include support At the core of the proposed fast-track business for research to be undertaken into the nature, licensing simplification approach is the principle scope and impacts of existing licenses and a of `reversal of the burden of proof '. Under this diagnostic report being prepared. At a later approach, regulators, (e.g., the `owners' of the stage, an explicit licensing reform mandate could reviewed regulation) must prove that regulation come in the form of a gazette notice, presiden- matches pre-defined criteria of regulatory qual- tial directive, or an official Cabinet/government ity. If they are unable to justify the regulation, or announcement. The reform mandate should do not notify its existence past a set deadline, the designate clear responsibilities for the reform, regulation is repealed by default. This mecha- preferably by allocating responsibility to a desig- nism reverses the incentives of otherwise reluc- nated high-level Business Licensing Reform tant regulators to share data and information Committee with a Secretariat, and set out the about `their' regulations. All `surviving' regula- overall process for the reform program. As part tions should be listed in a centralized electronic of this, the mandate should also establish mile- registry of all valid licenses (or regulations) in stones and deadlines for the review of licenses. force (see below for further information on a This would include deadlines for the submis- centralized registry). sion of `licensing data' from regulators to the Business Licensing Reform Committee, and for the submission to the Government of recom- Quantifying burdens and setting a mendations by the leading review body. In some target helps monitor progress cases, the mandate could also establish a quanti- It is generally challenging to assess the exact costs tative target for the reform, (e.g., a 25% reduc- on businesses of licenses, the net benefit of a par- tion in regulatory administrative burdens over ticular regulatory interventions, or to assess the 12­18 months). net benefit of a particular license. For example, surveys and other data collection tools can be See World Bank Group (2010) for examples for used to collect relevant information, although political mandates for licensing reforms. they can be costly and time consuming, and it can also be difficult to obtain robust data. Indeed, Institutional drivers is important in the data-poor environments of many develop- for success ing countries collecting data on the impacts of licenses can be a very challenging task. On the The role of institutions and the benefits of strong other hand, reforms with clear and quantitative institutional underpinnings of reforms are well targets tend to focus reform efforts, and provide a 17 WB203_PFPBLRS.indd 17 5/19/10 11:08:32 PM good basis for monitoring reform performance, may be preferable to indicate early-on in a reform outcomes and impacts. process that the policy objectives behind the cer- tification are not being reviewed and will be kept Recent experiences with the application of vari- `constant', with the review solely focusing on ations of the Standard Cost Model (SCM) sug- delivering those specified objectives in a more gest a considerable potential in also using this efficient and effective manner. simple approach to quantify existing adminis- trative burdens imposed on businesses. As Simple review criteria used in a number shown in ongoing reforms in Madagascar, of licensing reforms include: Rwanda and Zambia, hard data on the damag- ing impacts of the countries' licensing systems legality: is there a legal basis in a parent law create a momentum for reform. In the absence or higher ranking regulation to issue the of specified data on particular impacts, it should license? be noted that as a second best option plausible assumptions can also be used to help estimate necessity: is the license used to protect the through the SCM the administrative burdens environment, health or safety. Does the generated by licenses (and the potential gains license duplication other licenses or regula- from reforms to licenses). tions? Is it consistent with other regulations? See World Bank Group (2010) for a paper on the business friendliness: can the processes and application and experiences with the SCM. documentation requirements be further streamlined to reduce the administrative bur- dens imposed on businesses. Is the license Simple and transparent review criteria unduly prescriptive, is it performance and outcomes focused, is it accessible, transparent There is a risk that comprehensive licensing and easy to understand, can it be enforced? reviews are slowed down or results diluted if the review is not guided by clear, simple and trans- These criteria can also be applied for a review of parent review criteria. the flow of new licenses. A number of countries which have carried through licensing reforms One important threshold to consider is the extent have established `positive' and/or `negative' lists to which the review will look at sector specific of activities that either can be or can't be subject issues and standards and/or will focus on general to licensing. Other tools such as Regulatory issues of administrative streamlining and reduc- Impact Analysis (RIA) can also be employed to ing burdens on business. guard against bad licenses and regulatory prac- tices from re-emerging (see below for further See World Bank Group (2010) for further infor- discussion). mation on sector-specific licensing reform man- agement and issues Experiences from ongoing See World Bank Group (2010) for a more detailed pilots suggest there are risks and delays associated list of review criteria which can be successfully with the `sector' focus as opposed to the `stream- applied in licensing reforms. lining' or `reengineering' perspective (e.g., admin- istrative streamlining). The latter approach has Consultation and validation the clear advantage that it can be presented as politically neutral. For example, in reviewing As for other reforms, meaningful, inclusive and environmental impact certification licenses it timely consultation with relevant stakeholders 18 WB203_PFPBLRS.indd 18 5/19/10 11:08:32 PM --though workshops, surveys, meetings etc--is bribes --have time to mobilize and oppose very important to facilitate a successful and sus- reform. Furthermore, some countries may not tainable licensing reform program. Such consul- have the ability or capacity to implement broader tation helps ensure there is broad based and licensing reforms. For example, countries may ongoing support for the reform and can also face constitutional, legislative, political or assist the reform process directly, by obtaining resource constraints in reviewing all licensing and validating reform data etc. Under the Busi- laws/regulations and implementing comprehen- ness Licensing Reform approach, recommenda- sive reforms. tions for reform are a function of consultation and validation at three different levels: (1) with Where there is limited interest in (or commit- the regulating agencies, (2) with the private sec- ment to) comprehensive licensing reform-- tor, and (3) within the Business Licensing Reform such as support for reform being confined to a Committee. junior Minister or senior official in one Minis- try--a lighter, more flexible approach to imple- Although consultation and validation is impor- menting reform can be applied. A possible tant, it is unlikely that all recommendations can advantage of this approach is that reforms can enjoy consensus from all participating stakehold- be further tailored to particular conditions. For ers. Reformers should constantly consider how example, a license (such as building permits) best to mobilize and assure a `winning' coalition which has been identified as being problematic of stakeholders, which can ensure needed and might be reviewed and, where appropriate, sustainable reforms. In other words, reforms are reformed. not necessarily consensus based. Such targeted reforms can often build greater and See World Bank Group (2010) for an illustration more broadly based interest and commitment to of the overall reform process. undertaking further more substantial reform of licensing. However, implementing such targeted reforms in a sequential manner also has several Bundled implementation? possible disadvantages, including the benefits from reform being relatively small compared to the top- Once a review of existing licenses is complete, down fast track approach. In addition, this licensing reform proposals can be `bundled' approach can also give opponents of reform more together into a comprehensive and integrated time to organize and resist licensing reforms. reform program, through executive orders or an Act of Parliament. By bundling a large number of Therefore, deciding whether to bundle reforms license reforms into one `omnibus' reform, resis- or pursue specific reforms should be undertaken tance to reform can in many cases be successfully carefully and on a case by case basis. overcome. This approach can reduce the political and administrative cost of reform, as well as Finally, reforms can be implemented along side ensure timely implementation. with related reforms, such as Regulatory Impact Analysis (RIA) and electronic registries. These are That said, in some cases the `bundling' of ben- discussed in further detail in the following dis- eficial licensing reforms can also generate cussion. broader opposition to reforms, especially where licensing reforms are implemented slowly and See World Bank Group (2010) for examples of the losers from reforms--such as officials admin- laws and decrees implementing business licens- istering licensing systems who solicit and receive ing reforms. 19 WB203_PFPBLRS.indd 19 5/19/10 11:08:32 PM Ensuring sustainability: Regulatory is responsible for administering each license and Impact Analysis (RIA)? provide their contact details. This registry should be kept up to date and be accessible to all There is little point in reforming business licenses stakeholders, including business. In some cases if there are no mechanisms in place to ensure that registries may also provide positive legal secu- positive results are not eroded by creeping re-reg- rity, meaning that licenses must be in the regis- ulation and the re emergence of bad licenses and try in order to apply to business and be legally regulatory practices. Screening mechanisms for enforceable. new business licenses can help identify and elimi- nate proposals for bad licenses before they are See World Bank Group (2010) for an overview of promulgated. For this reason, the Business Licens- E-Registry practices. ing Reform Approach advocates the development and implementation of a `light' Regulatory Impact Analysis (RIA) system as an immediate How do it: Licensing reform step by step and integral part of the licensing reform process. This approach needs to be tailored to the indi- Although there will always be country specific vidual circumstances in each country and can issues, opportunities, challenges and adaptations, include developing a clear criteria and processes the Business Licensing Reform Approach includes to verify the quality of proposals for new or a series of sequential steps involved in the reform amended licenses. The RIA approach can also process. The reform approach as described above involve establishing a small oversight body within can be summarized in following key steps: a central coordinating area of government, to provide `quality control' over suggested new or 1) Project preparation and diagnostics; amended licenses. 2) Establishing a tailored and focused reform A host of documentation about the development program; of RIA systems is now available and can be accessed on World Bank Group (2010). 3) Reviewing existing licenses; and 4) Reforming licensing systems, establishing Ensuring sustainability: E-Registry processes to ensure bad licenses and regula- A centralized Electronic Registry of licenses is tory practices do not re appear and imple- another mechanism to improve and sustain mentation of effective and efficient M&E results of a licensing reform. A registry can hold and reporting processes. all valid business licenses, and provide critical data to businesses on licensing requirements. The Each of these steps include specific tasks and Business Licensing Reform Approach also advo- challenges and is supported by a range of stan- cates the development and implementation of an dardized documents such as information E-Registry as an immediate and integral part of collection templates, Terms of reference (TORs), the licensing reform program. mandates, etc. Further information about these four steps for reviewing, reforming and simplify- An E-Registry can document all licenses which ing licenses and related project materials can be apply in a particular jurisdiction, indicate who found in the World Bank Group (2010). 20 WB203_PFPBLRS.indd 20 5/19/10 11:08:32 PM Box 6: Business registration and licensing reform: similarities and critical differences Business registration and licensing reforms have many similarities, but also critical differences. From the end user perspective (the entrepreneur wanting to register a business and commence operations) business registration and licensing should be seamless and integrated. However, business registration and business licensing are based on different policy objectives, are governed by different kinds of laws and institutions, and require different reform approaches. For example, business registra- tion aims to document as a legal entity all businesses and allow identification of businesses for taxation, statistical and regulatory purposes. By contrast, business licensing aims to regulate the conduct and behavior of businesses entering and operating in particular markets. Most business registration reforms evolve around one or more of four basic components: 1. moving registration out of the judiciary; 2. allowing business registration to take place at multiple locations (e.g., not only the capital city, etc); 3. computerization of the registration process and associated activities; and 4. integration of registration activities with other regulatory services and transactions (one shop shops, etc). These reforms are often different to business licensing reforms, which tend to be more complex and politically sensitive, with greater reform costs and benefits distributed among affected stakeholders. This has important implications for the design and timing of the respective reforms. 21 WB203_PFPBLRS.indd 21 5/19/10 11:08:32 PM WHAT DOES SUCCESS LOOK LIKE?: MONITORING AND EVALUATION OF LICENSING REVIEWS AND REFORMS Development and application of a for thinking through and documenting these comprehensive M&E framework for issues in a systematic way. Indeed, it is important to have a robust M&E system in place at an early business licensing stage of a project, so that the potential gains from Monitoring and evaluation (M&E) is an impor- reform can be measured during the course of a tant tool for identifying the results, impacts and project and then integrated into the design of significance of gains from licensing reviews and future license reforms. Furthermore, such infor- reforms. Each project life cycle has three M&E mation collection and reporting is also important stages, including: to meet internal M&E requirements and for projects (and staff ) to be recognized when help- Stage 1: project design, evaluation design and ing to facilitate successful results. ex-ante cost/benefit analysis; Applying M&E to licensing is both complex and Stage 2: implementation, monitoring and challenging. For example, the impacts and out- supervision; and comes from licensing reforms--and other regu- latory reforms--can sometimes be difficult to Stage 3: completion, evaluation and assess- measure. Some licensing reforms--in particular ment of lessons learned. countries, for different types of licenses or licenses administered by particular regulators etc--will When commencing a project and thinking about have very significant impacts. Reforming these M&E, it is important to focus on key strategic licenses can generate very significant improvements issues relevant to the licensing project and issues such as large reductions in administrative burdens associated with effectiveness, efficiency, sustain- on business, better administration of licenses ability and documenting the IFC role and contri- improving the effectiveness of the regulatory sys- bution. M&E is a key project management tool tem and reducing the fiscal costs of regulators etc. 22 WB203_PFPBLRS.indd 22 5/19/10 11:08:33 PM By contrast, other licensing reforms will generate and other activities. Examples include the number smaller gains. For example, some licensing reforms of entities (i.e., countries or ministries etc) who may also focus only on particular significant licenses received support from the project, the number or groups or clusters of related licenses etc. of reports (assessments, surveys, focus group meetings, manuals etc) completed, the number of new licenses drafted and number of media Determining the significance reports etc. of licenses and gains from licenses reform Outcome indicators M&E aims to ensure that reforms are measured Outcome indicators measure the results which have and reported on during the life cycle of a reform been achieved and are directly attributable to out- and according to a standard template which puts. Examples include number of licenses repealed focuses on the impacts of reforms. Therefore, or substantially amended, change in the number of reforms to individual licenses which have signifi- procedures/transactions needed to obtain a license, cant impacts and generate significant benefits average number of days to obtain a license, and should be reported separately. Reforms to licenses change in the number of firms obtaining a license. which have less impacts should be grouped together for M&E reporting, so that their com- Impact indicators bined impacts are significant. The significance of licenses can be determined by reference to the Impact indicators measure indirect results arising scope of impact (i.e., how many businesses are from licensing reforms. Examples include aggre- affected) and intensity of impacts (i.e., according gate administrative and/or compliance cost sav- to whether impacts on affected businesses are ings to business due to licensing reforms and large, medium or low etc). changes in employment (i.e., formal jobs) in sec- tors subject to licensing reforms. M&E provides a readily available operational tool for project managers, and provides a way to ensure For further information about template M&E project-level comparable performance measure- indicators and measures see: ment indicators and targets are employed. The M&E framework and template employed for all http://vcg01.worldbank.org/vc/index.php & licensing reviews and reforms should cover, among http://smartlessons.ifc.org/lessonlisting.asp?id=322 others, the Business Enabling Environment (BEE) indicator categories provided below. Furthermore, Tools available to assist in M&E additional project specific indicators can also be used to supplement these mandatory indicators. It is important to note that licensing M&E Please contact the Business Operations product requires data such as the number of businesses team for further information. M&E measures will affected by licenses, administrative and/or com- typically involve an assessment of outcomes and pliance burdens generated by licenses and changes impacts before and after licensing reforms and in investment and employment etc, both before include: and after reforms are implemented. As noted above, such data are often difficult to obtain. Output indicators In some cases government statistics on business Output indicators measure the quantity of outputs and economic activity provide a useful basis and created by the project through the use of inputs starting point for M&E. However, in other cases 23 WB203_PFPBLRS.indd 23 5/19/10 11:08:33 PM relevant government statistics may be unavail- The standard cost model (SCM) can also provide able or unreliable. In either case, further data will a very useful way of measuring administrative be required to undertake proper M&E for license costs and burdens on business resulting from a reforms. license or group of licenses. This approach mea- sures the time and cost incurred by business in A range of specific tools are available to assist-- obtaining licenses and meeting license condi- on a case by case basis--in measuring M&E. For tions. Information generated by the SCM can be example, surveys and focus groups involving useful in identifying the significance of particular business can yield useful information on the licenses (including where the gains from reform impacts of licenses, such as compliance costs, will be largest) and can assist in developing a tar- impacts of inspections and out of pocket expenses geted license reform program. The SCM can also etc. Experiments can also be constructed and be used to measure changes in compliance bur- conducted to measure the results of reforms dens before and after license reforms. Therefore, (e.g., municipal level licensing reform using the impacts of reforms on particular businesses some municipalities as a `treatment' group and can be measured and the aggregate reductions in similar municipalities as a `control' group to compliance burdens can also be estimated. For compare outcomes and impacts). further information on tools available to assist with M&E. However, it should be noted that these approaches require time and generate resource costs. Fur- M&E also involves reviewing and documenting thermore, there are often limitations in the qual- lessons from licensing reforms, such as what ity of data generated through these approaches worked well, what did not achieve expectations which need to be carefully documented and and why. It is also important to measure the per- reflected in M&E reports. On balance, the time ceptions of business and other stakeholders dur- and resources allocated to data collection and ing and after the reform process. These lessons analysis tools should be determined on a case by and perceptions should also be documented so case basis. For further information and assistance that future licensing reforms can be `fine tuned' please contact Business Operations Product team and build-on the lessons learned from previous at businessop@worldbank.org. reforms. 24 WB203_PFPBLRS.indd 24 5/19/10 11:08:34 PM BIBLIOGRAPHY Argy, S and M. Johnson 2003, Mechanisms for ------. 2006a, Reforming Business Registration Improving the Quality of Regulations: Australia Regulatory Procedures at the National Level: a in an International Context: Staff Working Paper, reform toolkit for project teams, The World Bank Productivity Commission, Canberra, July. Group, Washington DC, February. ANAO (Australian National Audit Office 2007, ------. 2006b, Good Practices for Business Administering Regulation: Better Practice Guide, Inspections: Guidelines for Reformers, The Canberra, March. World Bank Group, Washington DC, October. Bureau of Industry Economics 1996a, Business Ladegaard, P. Jacobs, S and B. 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