98907 Case Study Closing the Licensing/Permit Regulatory Implementation Gap at the Sub-national Level in Bosnia and Herzegovina Prepared by: Tarik Sahovic, Victoria Tetyora, Imeldin Radaslic In Partnership With Kingdom of Sweden August 2015 ©2015 International Finance Corporation 2121 Pennsylvania Avenue, NW Washington, DC 20433 USA All rights reserved. August 2015 This work is a product of the staff of the Trade and Competitiveness Practice (the “Practice”) of The World Bank Group. The Practice is a jointly staffed unit of the International Bank for Reconstruction and Development (the “World Bank”) and International Finance Corporation (“IFC”) The information included in this work, while based on sources that the Practice considers to be reliable, is not guaranteed as to accuracy and does not purport to be complete. The findings and views published are those of the authors and should not be attributed to any of IFC, the World Bank, the Multilateral Investment Guarantee Agency (“MIGA”), or any other affiliated organizations (together, the “World Bank Group”). The World Bank Group accepts no responsibility for any consequences of the use of such data. The information in this work is not intended to serve as legal advice. Nor do any of the conclusions represent official policy of the World Bank Group or any of its member institutions. The denominations and geographic names in this publication are used solely for the convenience of the reader and do not imply the expression of any opinion whatsoever on the part any member institution of the world bank group concerning the legal status of any country, territory, city, area, or its authorities, or concerning the delimitation of its boundaries or national affiliation. About Trade and Competitiveness Global Practice of the World Bank Group Trade and Competitiveness Global Practice of the World Bank Group helps governments implement reforms to improve their business environments and encourage and retain investment, thus fostering competitive markets, growth, and job creation. Acknowledgment The World Bank Group’s Investment Climate Projects in Bosnia and Herzegovina wishes to thank the Kingdom of Sweden and Ministry of Finance of the Government of Austria, for their generous support in funding the Projects’ activities. The Project team would like to also thank and acknowledge Lisa Kaestner, Practice Manager, Trade & Competitiveness Global Practice in Europe and Central Asia, and Syed Akhtar Mahmood, Lead Investment Policy Officer, Business Regulation Investment Climate, World Bank Group, for their valuable comments and peer review of this document 3 Background Bosnia and Herzegovina (BiH) is classified as a Fragile and Conflict- This case study attempts to contribute to the theory that states Affected State. It has a complex government structure which is that the quality of implementation is the ultimate determiner plagued with significant political turmoil each election cycle. BiH of the degree of reform success. Good laws, no matter how comprises the national (federal) level government, and two entities well worded, make no difference if they are not implemented – the Federation BiH, Republika Srpska (RS), and Brcko District consistently, professionally, comprehensively. This document – all of which have strong legislative powers affecting day-to-day explores the causal effect the project’s specific actions have had on business operations. The Federation BiH is further divided into 10 closing the regulatory implementation gaps identified in the areas cantons, each with their own government and legislative powers, of entrepreneurship and the construction laws in BiH. although ultimately they are governed by the laws of the Federation The study consists of four parts. The first part details how the BiH. Both the Federation BiH and RS are further subdivided into team identified the existence of a regulatory implementation gap 143 cities/municipalities, each with their own municipal councils. and its causes. The second part analyses and describes the process Such a complex structure gives rise to overlapping competencies, of addressing the specific regulatory implementation gap identified conflicting legislative provisions, and a regulatory implementation in part one. The third part provides details of the process of the gap at the sub-national level. regulatory simplification the team used to address the regulatory This four-level government structure added complexity to the implementation gap across jurisdictions, and to link these reforms World Bank Group (WBG)‘s efforts to improve the investment with a reduction of the administrative burden and increased climate, as one of the cross-cutting tasks was to link reforms transparency. Finally, the study also distills the lessons learned at various levels of governments, to ensure the elimination of during this process that may be relevant for similar situations and contradictions and that their application is consistent at all levels. environments elsewhere in the future. Part four cites those lessons. It was crucial, therefore, to tackle the following four overarching issues hindering the investment attractiveness of BiH: • the regulatory burdens created by all four government levels; 2 • the emerging regulatory implementation gaps at the sub- 1 Brcko District of BiH Republika Srpska national level; • the lack of transparency of regulations; 3 • the lack of harmonization between the regulations promulgated 4 Federation of Bosnia and Herzegovina by the different government levels in BiH. 10 6 The purpose of this explanatory case study is to capture the Republika Srpska experience and lessons learned by the BiH team in reducing the 9 5 regulatory implementation gap 1 . The team was first faced with an 7 issue of the regulatory implementation gap in 2008 upon completion 8 Federation of Bosnia and Herzegovina of a sub-national Doing Business assessment in three cities in BiH. That is when it became clear that the same regulations have been implemented differently by the assessed three municipalities, thus creating this gap. In addition, a similar concern about sub-national regulatory implementation gaps in BiH was voiced by businesses and higher level authorities, but at the time no one could pin-point 1. UNA-SANA CANTON 2. POSAVINA CANTON concrete causes and severity of the gap. 3. TUZLA CANTON Bosnia and Herzegovina The aim of this paper is to analyze and describe the approach, 4. ZENICA-DOBOJ CANTON Federation of Bosnia and Herzegovina 5. GORAŽDE CANTON process and tools used by the team in identifying the problem of Republika Srpska 6. CENTRAL BOSNIAN CANTON ambiguity in the text and the inconsistency of application of the Cantons 7. HERZEGOVINA –NERETVA CANTON Brcko District of BiH 8. WEST-HERZEGOVINIAN CANTON same legislation across several BiH jurisdictions; and how the team’s 9. SARAJEVO CANTON Municipalities 10. CANTON 10 decisions, activities and actions contributed to and influenced the results, that is to say in closing the regulatory implementation gaps at the sub-national level. The study also revealed the causal effect of the team’s efforts in terms of enabling the private sector to realize real benefits from the implemented reforms. 1 We are making a distinction between deficiencies in the way regulations are implemented/enforced and the poor quality of implementing reforms. The former (regulatory implementation gap) is about the system as it is currently operating while the latter (reform implementation gap) is about attempts to change the system. Much of the focus of this note is on the former, i.e. changing the way the existing regulations are implemented and about how reforms supported by the project attempted to address the issue of regulatory implementation gap as it relates to licenses and permits in the former sense. However, the case study also touches upon the reform implementation gap, albeit to a lesser degree, i.e. changing the existing system of implementing reforms – quality, pace, consistency. 4 Closing the Licensing/Permit Regulatory Implementation gap at sub-national level in Bosnia and Herzegovina Part 1: Identifying the problem and its root causes Defining the regulatory implementation gap The regulatory implementation gap can be defined as the difference Figure 1. Implementation gaps illustrated between what the laws say on the statute books and how these laws LAW function in reality. This is a concern for many countries worldwide these days. The regulatory implementation gap is especially acute in developing/transition economies. Over the years regulators have emphasized the adoption or amendment of laws as the primary goal of policy making. The assumption was that once a law is in place Gap 1: Law vs Bylaws its implementation will somehow automatically follow, and so the anticipated results and impacts of reforms will be eventually gained by the ‘simple’ adoption of the law. Therefore, the majority of efforts Gap 2: Intended vs Actual Interpretation have focused first and foremost on preparing good, state-of-the- art laws. Gap 3: Different Application of a regulation Experience has proved this assumption wrong2 . Over time the within One Jurisdiction gains expected from legislation have not materialized. Rather it has become evident that investing contemporaneously, in specific, Gap 4: Different Application of a regulation targeted efforts to enable implementation is equally important and across Different Jurisdictions critical, especially in countries with transition economies where neither the institutional structures or existing incentives systems It is important to differentiate the reasons why regulatory nor human capacities are ready to embrace the changes introduced implementation gaps happen. Typically there are four types of gaps. by these new laws3 . 1. Gap between laws and supporting bylaws, rules and regulations, This regulatory implementation gap is likely to be wider in i.e. the latter does not follow the spirit of the former, or countries with multi-layered government structures. Such is the supporting bylaws and regulations are non-existent. case with BiH where different locally-managed municipalities and 2. Gap between the intended interpretation of the law and cantons have the power to set their own rules, or simply bend the the actual interpretation. One of the causes of multiple rules established at the entity or national level knowing they will interpretations of the same regulation is the quality of not be held accountable for doing so. While there are significant legislation. For instance, poor and ambiguous clauses that lead regulatory and legislative powers at the entity level, the major part to various interpretations of the same regulation. of regulatory service delivery actually happens at the local and 3. Divergence in the application of the same rules and regulations cantonal level. Thus most small- and medium-sized businesses rely across various entities within one jurisdiction. on the knowledge, professionalism and capacity of staff in local 4. Divergence in the application of the same rules and regulations municipalities to deliver administrative services for business start- across jurisdictions. ups, investment and day-to-day operations. The largest number of This distinction is important as both the causes of such gaps and business requests happen at the local and cantonal level, as this is thus the solutions for closing them will differ. BiH experienced where the most common permits needed for business operations a combination of all four types of regulatory implementation are available. Similarly, the majority of investors (local or foreign) gaps. One of the UN tools provides some quantitative data on refer to the local and cantonal level authorities for the different implementation gaps. The Global Integrity Scorecard assesses the permits needed related to construction and business operation ‘health’ of a country’s anticorruption framework. Its 300 indicators activities, as well as utility connections and other permits. assess the existence, effectiveness, and citizen access to key There is a weak link between the local and higher (entity) levels governance and anti-corruption mechanisms. It examines areas when it comes to the interpretation and application of legislation. such as government oversight and controls, anti-corruption efforts, In other words, the same national/entity regulation is implemented and public administration quality and professionalism across differently by different municipalities and cantons (and for that several dimensions. It measures both legal provisions (‘in law’) matter, the same cantonal regulation is implemented differently by and implementation of the laws across the measured dimensions the various municipalities in that canton). This chain of differences (‘in practice’). As Figure 2 shows, while the GIS ‘in law’ score was in interpretation and application of the rules set out in laws creates rated “very strong” for BiH in 2011 (and the fourth highest of the the regulatory implementation gap that has become a serious 31 countries assessed), the implementation of those laws was inhibitor to doing business in BiH. It also adds further complexity for considered “very weak” (the fourth lowest of the 31 participating businesses trying to comply with often cumbersome regulations. countries). 2 Center for International Private Enterprise and Global Integrity. Closing the Implementation Gap Between Law and Practice, 2012 3 The team didn’t conduct an in depth assessment of human resources management and incentive systems as part of the work in BiH that is described in this case study. Some human capacity development activities were implemented in the form of capacity building programs and training of both government authorities involved and private sector companies. Looking at the role of institutions, human resources management and incentives systems in enabling implementation can be a follow on work on closing regulatory implementation and reform implementation gaps in the future. 5 Figure 2. Global Integrity Scorecard – BiH’s implementation of legislation ranked fourth lowest among 31 assessed countries 100 92 80 In Law (L) 60 Implementation Gap (L-P) 57 40 35 In Practise (P) 20 Country Score 2007 2008 2009 2011 The historical trend of measuring BiH’s place in the GIS shows a their resources to deal with multiple paperwork requirements and slip in the issues of ‘in practice’ implementation of policies and interactions with officials without knowing if they will be asked to legislation governing various areas including transparency, public submit “yet another document” without any justification as to why. sector service quality, taxation, and business permits and licensing Late market entrance and lost opportunities follow. And this, in since 2007. This contributed to the overall weak country score in turn, opens the door to petty corruption with businesses trying to the 2011 scorecard. The ‘very strong’ position in the ‘in law’ category find ways to overcome hurdles and get things done faster. (92) and the ‘very weak’ position in the ‘in practice’ category (35) Figure 3 completes this cumbersome picture of the BiH business confirm the existence of a wide gap between what the laws say on environment. On the one hand there are burdensome and the books and how they are applied in actual practice. multiple regulations and a myriad of administrative documents that businesses have to get to operate. On the other hand these Poor transparency of procedures coupled with vague requirements cumbersome regulations are open to different interpretations and There is a lack of regulatory transparency in sub-national (entity, are inconsistently applied from municipality to municipality. This canton, cities and municipalities) service delivery. Few cantons, and tangle of burdensome regulations and inefficient implementation even fewer cities/municipalities, have fully transparent electronic creates significant barriers for business development and registers where all the information about procedures for businesses investments in the country. Moreover, there is an overlap in the is publicly available. Different interpretations of regulations adopted competencies of different levels, which contributes to further at higher levels by local level implementing officials, coupled with complexity and inconsistency in the application of regulations and opaque requirements, lead to a lack of predictability for businesses. problems for businesses. Businesses cannot efficiently plan their operations and channel Figure 3. A maze of licenses, permits, and approvals at all four government levels significantly and unnecessarily burdens businesses 102 permits/licenses at State BiH level 389 at Federation BiH level • Out of these, 355 are business related Over 1,000 business- related 583 at Republika Srpska level permits facing companies that • Out of these, 319 are business related want to work throughout BiH 208 at cantonal level (on avarage) • Out of these, 161 are business related 159 at municipal level (on avarage) • Out of these, 94 are business related Average annualized direct baseline costs of compliance per businesses in any given municipality - $1,979 Average annualized direct baseline costs of compliance for businesses in any given canton in Federation BiH - $2,200 Average annualized direct baseline costs of compliance for businesses dealing with Federation BiH level licenses/permits - $404 Source: official government records/data bases and T&C staff calculation 6 Closing the Licensing/Permit Regulatory Implementation gap at sub-national level in Bosnia and Herzegovina Further evidence of a regulatory implementation gap - case in point: Analysis of the practice of applying the legislation governing dealing with construction regulations in BiH construction procedures in RS, for instance, revealed that the number of documents required from businesses has ratcheted One telling example pertains to construction-related regulations. up to 11, varying from municipality to municipality. The law itself These have been cited by businesses as highly inconsistent and stipulates the same procedure for all municipalities. However in fragmented. As a result, they amount to a regulation application practice it is applied differently. The time frame for receiving a which has created a wide regulatory implementation gap in BiH. response from officials also varied from 15 to 60 days depending Two major contributing factors have been identified: the first is on the specific municipality/city concerned. In addition, the list the ability of local authorities to impose additional requirements of documents required of businesses to obtain a location permit on businesses along with a legal framework allowing various differed between municipalities within one entity (Figure 4), while interpretations by municipalities. The second factor stems from the law prescribed one set of documents and a deadline of up to 60 the vagueness of the legal framework itself, which lends itself to days. varying interpretations, additional requirements and a general confusion around what exactly is required from both implementing officials and businesses. Figure 4. Inconsistent and varied interpretations of the same permit in different municipalities – an example of the requirements for obtaining a location permit as per the RS Construction Law Total # of # of original # of days to Municipality/City # of copies documents documents deadline 4 Banja Luka 9 4 5 60 Bijeljina 9 4 5 30 Modrica 10 5 5 30 Novi Grad 10 4 5 30 Doboj 10 5 5 15 Visegrad 11 6 5 20 Zvornik 9 4 5 60 Similar inconsistency in applying regulations, stemming from to the Cantonal Construction Law that operated at the time of individual municipal interpretations of the higher level law are assessment, obtaining a construction permit required the same set intensified by a lack of enforcement by higher levels of governments of documents from businesses. In practice, however, this ranged vis-a-vis wrongful interpretations of that law by municipalities, from 7 to 11 documents with the deadline for authorities to respond as observed in Zenica-Doboj canton (Federation BiH). Different ranging from 20 to 30 days, depending on the municipality (Figure 5). municipalities required a different number of documents. According 4 Deadlines are stipulated in the jurisdiction specific rules. Same goes for documents and form of documents – all are stipulated in the rules, but as evident, implemented differently. 7 Figure 5. Individual residential buildings in Zenica-Doboj canton – an example of the inconsistency of application of the Cantonal Construction Law in terms of getting construction permits. Total # of # of original # of days to Municipality/City # of copies documents documents deadline Tesanj 13 7 6 20 Zenica 14 11 3 60 Visoko 14 9 4 30 The obvious question to ask is why obtaining the same permit meant Further evidence of a regulatory implementation gap - case in point: addressing such different requirements in the same jurisdiction. Why starting a craft shop in the Federation BiH did one municipality issue this permit within 20 days while others needed as much as 60 days (regardless of human capacities and IT The Federation BiH established a requirement for a special permit to capabilities, which appear at first glance to be similar from locality be obtained by anybody wishing to engage in entrepreneurial activity. to locality)? Why did one municipality working under the same The Law on Entrepreneurship of the Federation BiH introduced this framework legislation ask a business to submit seven documents requirement as well as set out specific rules and requirements for while another municipality nearby asked for 11 documents? These are obtaining it. According to this law, applicants had to submit seven the questions the T&C team posed before recommending changes. documents when applying to open a crafts store. Furthermore, field The real reasons underlying these application inconsistencies implementation (based on a sample of 13 municipalities) of this law were poor regulatory service delivery, the lack of enforcement of revealed that there were various inconsistencies in the number of procedures by higher level authorities, inadequate penalties for non- documents asked of businesses during the application process for compliance, and in some cases vaguely defined laws. this particular type of activity. The number ranged from six to as many as 13 (Figure 6). Figure 6. Law on Entrepreneurship in Federation BiH - inconsistency of application in several municipalities. Total # of # of original # of days to Municipality # of copies documents documents deadline Range of documents required in 13 municipalities in the Federation BiH BiH: Novo Sarajevo, Gorazde, Siroki From 6 to 13 From 5 to 10 From 1 to 3 Up to 15 Brijeg, Bihac, Tesanj, Bosanska Krupa, Srebrenik, Tuzla, Vitez, Zivinice, Ilidža, Visoko, Zenica In addition to this discrepancy in the number of documents required, type of analysis was done to assess the actual risk the business different municipalities asked for different types of documents, would pose to society or nature. Thus, the real reason(s) why such an thereby widening the implementation gap even further. These were array of documents are required remained a conundrum. a varied mix that included the following: identity cards, citizenship What was even more worrisome to the T&C team is that jurisdictions certificates, certificate of legal business capacity, qualification are aware of the differences in the way they apply legislation 5. certificate, medical certificate, verification certificate from the However, they don’t bother to change as they believe in their own unemployment register, a minor offence court document certifying right. In contacts with government officials, they all claim that they that no ban exists on the proposed trade activities, tax certificates, are properly interpreting the regulations, and that other localities health and pension certificates, CIPS (personal ID card) certificates, (that might be asking for less or more documents) are doing it wrong. a decision on meeting the minimum technical requirements, approval They are sure they don’t need to change anything because all of their of allowed noise levels and a veterinary/sanitary permit. One would actions are grounded in regulations. For them there is a legacy of why be very interested to hear the justifications of the necessity to things are done in a particular way which justifies the reasons why no submit at least half of the documents in the above ‘laundry’ list just change is needed. to open a crafts store. It is obvious that no scientific or any other 5 Based on T&C team discussion with the clients. 8 Closing the Licensing/Permit Regulatory Implementation gap at sub-national level in Bosnia and Herzegovina Part 2: Addressing the problems identified in Part 1 – process, steps, results The ‘how’ of identifying the problem and its causes The T&C team did a rigorous analysis of the problem and, more • In general, the procedure for issuing urban permits for complex importantly, its causes. This analysis comprised several parallel buildings was streamlined, irrespective of the existence of activities. First of all, the legislation was analyzed at all levels – zoning plans: if a zoning plan was in place, then the process was state, federal, cantonal and municipal. The purpose of the legal significantly streamlined since there was no further need to review was to identify inconsistencies in the approaches and obtain pre-approvals from utility companies, even for complex requirements for the same regulation in the existing legislation as buildings. This had been a huge bottleneck for companies. well as to identify areas likely to benefit by a simplification of these • The process and documentation for issuing a construction requirements. Local legislation was also assessed and mapped permit was streamlined, with the result that businesses should against the relevant international best practices. now be able to get a construction permit in 15 days (assuming all documentation has been completed correctly), irrespective Secondly, the team analyzed the practices of select municipalities of building size. in applying the legislation related to the construction area and • The process of issuing a usage permit was likewise significantly entrepreneurial activity. This helped establish deviations in the streamlined and reduced to 15 days (assuming all documentation application process against that which the legislation requires while has been completed correctly), irrespective of building size. pinpointing regulatory implementation gaps. • The new law also provides for faster administrative processing The above analysis of the problem and its causes was central to of major infrastructure projects. developing solutions, meaning specific actions to help clients to All of these regulatory changes helped to reduce the gap as close the identified gaps by focusing on implementation. they provided for clarity, consistency, and simplicity in the Case in point: addressing the identified problems with BiH implementation. But, these regulatory changes would not be construction laws enough to secure closing the gap without actual follow through with Problem analysis provided the team with the important baseline of the reform that the team provided to the Ministry. the causes of inefficiencies and inconsistencies in implementation Following the adoption of the new Law (in mid-2013) and new as well as providing grounds for estimating the scope, depth and unified requirements on the book, the T&C team worked with the breadth of the simplification activity needed. ministry to implement the reform on the ground. We helped to In the RS, the T&C team identified legal bottlenecks and a lack of prepare rulebooks (adopted in early 2014), and a single submission specificity in the Construction Law as causes of the inconsistencies form for businesses (2014) which the ministry then distributed in the regulatory requirements for obtaining a location permit to all municipalities to use going forward. This was followed by across municipalities. These causes refer, in addition to regulatory further work with the ministry instructing these municipalities implementation gap, to the reform implementation gaps, i.e. on how to implement the new law, including two jointly organized inconsistency and fragmented approach to implementing reforms. technical seminars/training sessions for them on best practices The team also identified different interpretations of the legal implementation (in 2014). Following that, the T&C team reached provisions by some municipalities, coupled with their own additional out to these seven municipalities together with the ministry and requirements from businesses that added complexity. The response checked implementation on the ground to ensure that the law was to these deficiencies was two-fold: being applied consistently across the board. Thereafter the ministry communicated to other municipalities to ensure the same. This has 1. Preparation of a completely new Construction Law in RS now (in 2015) demonstrably resulted in a consistent application of 2. Assistance with the implementation of this new law at the the new law on the ground ensuring full implementation (Figure 7), municipal level. as verified by actual implementation on the ground for over a year The team worked very closely with the Ministry of Urban Planning and a half. and Construction RS in preparing the new law over a 10 month period. They were instrumental in having new and innovative provisions included in the law (none of which were present in the old law), namely: • The introduction of a risk-based approach: for buildings up to 400 m2, the procedures for issuing a site/urban permit were abolished if a spatial/zoning plan had been adopted in a particular locale; this also meant that obtaining pre-approvals from utility companies for buildings under 400m2 was abolished. 9 Figure 7. Newly consistent requirements for obtaining a location permit in RS across sample municipalities Total # of # of original # of days to Municipality # of copies documents documents deadline Banja Luka, Bijeljina, Modrica, Novi 8 3 5 15 Grad, Doboj, Visegrad, Zvornik Closing the gap in the application of the location permits led to with businesses. In total, compliance cost savings resulting from considerable monetary savings for businesses and citizens (Figure this reform amounted to $1.1 million annually. 8). These savings have been confirmed and verified on the ground Figure 8. Savings derived from the simplification of the construction law in RS Individual housing and individual $250 residential and commercial $200 buildings up to 400 m2 in zones covered by regulation plan $150 $100 Individual housing and individual residential and commercial $50 buildings up to 400 m2 in zones covered by regulation plan and $0 all other types of buildings Addressing implementation gaps in Zenica-Doboj canton In Zenica-Doboj canton, the T&C team identified the legal bottlenecks After this regulatory simplification was accomplished (the new in the construction law that were generating inconsistencies construction law, plus the regulatory simplification at the local level), in the regulatory requirements across municipalities. They also the team managed to: identified different interpretations of the legal provisions by some • Harmonize the number of documents required from businesses. municipalities. The response to these deficiencies was similar to • Eliminate the procedure for individual residential and commercial that implemented in Republika Srpska. It consisted of preparing a buildings of up to 200 m2 and buildings intended exclusively for completely new construction law in Zenica-Doboj Canton, and of agricultural activities of up to 400 m2. assisting with the implementation of this new law at the municipal • Shorten the number of documents needed to 10. level. • Shorten and unify the deadline for response to 10 days. The Zenica-Doboj construction law was changed, and the regulatory • Further narrow the gap by eliminating previously required regime simplified at the municipality level. This intervention led to documents for a location permit by introducing ex-officio flows the following improvements: of documentation the by government. • For residential and business purposed buildings of up to 400 The T&C team worked with the ministry to prepare a single square meters in zones covered by the regulation plan, the submission form for businesses. The ministry subsequently procedure was simply eliminated. distributed this new form to all municipalities to use going forward. • For residential and business purposed buildings of up to The team also worked with the ministry to instruct municipalities on 400 square meters in zones not covered by the regulation, how to implement the new law, and jointly organized two technical plus all other types of buildings, the gap for a location permit seminars/training sessions to further support these municipalities was narrowed in terms of the documentation needed in the in their efforts to implement the new law. After that, the T&C most problematic municipalities. This was accomplished team reached out to three sample municipalities together with the by eliminating previously required documents, namely the ministry and checked the new implementation procedures on the specified excerpt from the land registry book, deed book of ground, ensuring that the law was being applied with consistency possession and statements by owners of neighboring parcels. across the board. • The municipalities were given a new common deadline for This closing of the gap in the application process for location permits responding on business applications – just 15 days instead of led to considerable monetary savings for businesses and citizens the 20 or 30 that were in common use before. alike. In total, the compliance cost savings resulting from this reform 10 Closing the Licensing/Permit Regulatory Implementation gap at sub-national level in Bosnia and Herzegovina amounts to $1.29 million annually, as already confirmed and verified • The range of required documents shortened to 7-9 (the previous with businesses through focus groups, interviews, and factual data. range was 6-13). • The gap in the number of documents needed was substantially Case in point: addressing the problems identified narrowed – a reduction of 43%. with launching a craft shop in the Federation BiH • The gap in the number of original documents needed was likewise substantially narrowed -- a reduction of 30%. As there was no interest from the government in changing the law • The gap in the number of days needed for the government to to address some of the bottlenecks, the T&C team decided to work issue a permit was similarly reduced by 40%. with the municipalities over time to narrow the gap to the largest This demonstrates that even without changing the law, the T&C extent possible. Thirteen municipalities were engaged in longer team successfully managed to work across jurisdictions to narrow term regulatory simplification work (see detailed explanation of the the gap and reduce the regulatory burden for business. methodology in part 3). This resulted in the following: Part 3: Closing the gap across jurisdictions and linking up with other reform processes How this is achieved: the implementation phase - steps and timetable Since 2008, the WBG projects have achieved $12.4 million in This section describes what the typical regulatory simplification compliance cost savings for businesses on the sub-national level engagement looks like at the sub-national level. This is not specific only. Furthermore, this sub-national level work was subject to an to the regulations mentioned above. Rather the focus is on analyzing independent impact assessment in 20156 which independently the entire spectrum of permits and licenses at the sub-national level verified the results of the WBG efforts in closing/narrowing the to identify and pinpoint the gap and then set about narrowing it. The regulatory implementation gap in this stratum. Data gathered idea behind this detailed and meticulous process is to: 1) reduce the through the impact assessment revealed that there were no longer administrative burden for businesses; 2) increase the transparency any variances in how the regulations governing construction of regulatory service delivery; and 3) reduce the regulatory permits are applied in locales where the projects intervened and implementation gap. implemented changes to the legal framework and to application The project’s engagement with a municipality or canton usually practices. This means that businesses increasingly agree that it is lasts for up to 12 months, from its launch until the monitoring cheaper, easier and less burdensome to obtain licenses and permits phase conducted in cooperation with businesses to verify that in these localities7. Furthermore, the process is more transparent implementation of the new procedures is complete (Figure 9). Annex and predictable now across these municipalities. 1 presents a breakdown of indicative activities as they took place Impact assessment confirmed that in localities where these projects during specific intervals of the project implementation. intervened the following results were achieved: • A 6.41 percentage point increase in employment levels compared to other municipalities • Procedure waiting times (to receive response from civil servants) reduced by 26 percent in localities where project was implemented, compared to other localities • Increased transparency of regulatory service delivery through the use of electronic registers8 • Enhanced consistency assured in the application of regulations across jurisdictions 6 Over 320 companies from 16 localities (8 where project work was done and 8 more comparable localities where there was no project work) surveyed on the impact of 8 comparable licenses/permits per locality (the most frequent or most burdensome were selected). Moreover, detailed statistical data analysis and interviews with municipalities and cantons were completed. Full impact assessment study and findings can be obtained separately by contacting Tarik Sahovic at tsahovic@ifc.org. 7 On average it is 4.1% cheaper on cantonal level and 23.3% on municipal level in localities where project was implemented, compared to where it wasn’t. Also, on average, firms spend 30% less time to file documents and complete procedure of applying for permit in localities where project was implemented. 8 The Electronic registry is the online repository and data base of all licenses and permits in that jurisdiction. E-registry contains all information needed regarding each of the procedures, including costs, documents, submission forms, and wait times among others. Based on impact assessment, on average, 60% of firms use e-registers, which is significant. When comparing situations before and after e-registers, the majority of firms (2/3 of those under the survey who used e-registers) confirmed that the time spent on procedures is now shorter and complexity has been reduced. 11 Figure 9. The process of regulatory reform at the sub-national level 1 2 3 4 5 Verification and Analysis and Institutional Preparation and Implementation of Consultations with preparation of the acceptance of the review of the recommendations; Preparation Phase business and the civil recommendations recommendations; inventory of all Establishing the sector for streamlining of starting licenses and permits E-Register of licenses and permits implementation Permits Part 4: Lessons learned Through the process of closing the regulatory implementation gap Hence, real determination is required from the project team to cause the World Bank Group team learned some valuable lessons that will the government to agree to do so. Also, obtaining an official signature inform other similar engagements. on the cooperation agreement should be done with the government not with an individual ministry. When government changes take The importance of taking a stakeholder approach. Involving a wide place, ministry heads are always changed; so having a single ministry group of stakeholders in the process from beginning to end is critical. sign the agreement might not be sustainable. Stakeholders can provide quick and realistic feedback regarding regulations implementation, for instance. They are also helpful in Co-financing of project activities by the government further estimating how big the discrepancy in implementation is, what improves the likelihood of efficient implementation and the the root causes are, is and what will be most useful in eliminating government’s determination to get results. The project on average the identified constraints. Engaging private sector stakeholders charged clients with 9-10 percent of the project financial cost, in consultations – both in problem identification and solution plus in-kind contribution. However, the sum of money in this case development -- is likely to result in greater support for some of the is secondary. What is important is the government’s commitment tougher reforms as well as assuring greater private sector impact. to the cause and seriousness about changing the status quo. When clients commit any budgetary resources to project implementation, Similarly, the public sector must be part of the process and come to they treat the project much more seriously since they are accountable feel ownership of the reforms, to accept the proposed changes more for the money spent. This basically provides much more leverage for willingly and to ensure they are implemented properly. the project in the context of client priorities. It also helps to stoke In order to ensure stakeholders are engaged at the required level, a reform momentum. mix of means and tools is recommended. These can include face-to- The need to involve key decision makers right from the start. One of face meetings/consultations or larger focus groups; or fact finding the main factors influencing project implementation is the inclusion events structured as public-private dialogue fora and surveys. of the main decision makers in the project, such as getting the mayor Needless to say, it is critical to review, update and guide stakeholder of a municipality or a local project coordinator to chair the working views and positions toward specific issues the project is dealing with group/body representing the client/institution. Rome was not built on a regular basis, especially in those environments where constant in a day. It takes time for a local World Bank Group team to earn political changes are ‘business as usual’. credibility and trust in the eyes of clients and stakeholders. Thus, Local context matters. When designing the project delivery there is there is a need to have somebody from the ‘inside’ of the municipality a need to ensure that it is localized and adjusted to client needs and gain an in-depth understanding of what the team is trying to do, why to the local environment. Best practices, no matter how good they it should be done and how important it is to do it now. This person may be and how well they have worked in many countries, should should preferably be the decision maker in the municipality, leading be applied with caution and should be considered first in the local and inspiring others to take action. That’s why it is crucial for the context and environment. Contextualization is even more important team to involve this person from the very beginning, and to have for regulatory implementation gap activity as implementation often continuous and consistent communication and coordination with fails when several government layers and levels are involved. There this person throughout the process. Not surprisingly this takes is a real need to secure the link between various governments’ levels time energy on the part of the team, first in finding them, then for maximum impact. briefing him/her, convincing him/her of the rightness of the cause Formalizing relations with government counterparts for greater and ensuring that he/she stays with the team, gaining a sense of results. Experience shows that concluding cooperation agreements ownership of all the activities performed with help of the World Bank with government counterparts often leads to a more comprehensive Group. government buy-in to the project’s activities, as well as a greater There is a positive side to elections too. Government elections are interest and commitment on their part. It is recommended therefore, generally not very good for project implementation. They disrupt to persuade government counterparts to sign such agreements. project work and divert the government’s attention to matters that Governments are usually reluctant to sign legally binding documents. will ensure them more votes. That said, experience has shown that it 12 Closing the Licensing/Permit Regulatory Implementation gap at sub-national level in Bosnia and Herzegovina is a general election that has the greatest negative affect on project national level, most small- and medium-businesses rely on service activities. This is true for sub-national work, when the project is delivery at the sub-national level to launch their businesses, attract interacting more with and depending more on local authorities and investment and drive day-to-day operations. Also, most investors how they behave. When general elections approach, local authorities (local or foreign) depend on local level authorities for different tend to postpone necessary decisions related to such projects. Oddly, construction and business operation permits, as well as utility this is not the case during local elections. When these are underway, connections and regular business operation permits. local authorities continue taking a ‘business as usual’ attitude, which However, individual locales themselves can’t be the sole determinants obviously benefits a project. of investment decisions. In many cases there is a weak link between sub-national and higher levels when it comes to business regulation- Use mass media and private sector stakeholders to build the making and its subsequent enforcement process. This means sub- pressure to perform. Creation of public pressure via frequent national level work needs to be linked with national level reforms, publication of media reports and news about project activities can making the programmatic approach and synergistic effects of linked foster project implementation and mitigate some tacit internal interventions complementary. resistance to it. Politicians always care about increasing the number The experience of Bosnia and Herzegovina tells us that driving of votes they can capture during the next elections. Hence, they reform takes time, patience, attention to detail, inclusion and a clear, do pay attention to what newspapers or TV programs say about sequenced action plan. Ad-hoc, unstructured, disconnected actions their work. This spells ‘opportunity’ for such a project, initially by are ineffective and do not produce results. channeling key information about the need for particular reforms The BiH case essentially created a “template” for identifying through the mass media. why certain reforms have not worked to their full potential, in particular in the multi-layered political environment with proposed Conclusion and replicability specific actions for addressing identified bottlenecks. The critical success factors of the BiH experience came from addressing these Investment is a local phenomenon. Businesses select specific locales bottlenecks holistically. for investment but the investment climate in those locales drives This detailed and comprehensive fact-finding exercise provided a the investment location decisions. Cities, subnational/regional factual basis for understanding the complexity of the issues that governments, and the private sector all play defining roles in city were undermining the reform process. Work at the legislative level economic outcomes. Cities tend to make economic activity more (essentially simplification of cumbersome regulations), coupled with efficient. They are crucial nodes in global value chains (GVCs), and implementation activities at the individual municipality and canton are centers of activity, where economic inputs are matched, goods levels led to the removal of ambiguities in the legal text and the traded, and knowledge shared. Various estimates claim urban areas elimination of inconsistency in its application across jurisdictions. contribute as much as 70 percent of global GDP9, even though they The methodology applied is fairly simple and can readily be applied only represent half the world’s population. elsewhere with adjustment to the local context. This is very In an increasing number of countries, local governments levy taxes, important since such reforms can’t be consolidated by taking a impose regulations, invest in roads, provide basic services, manage “cookie-cutter” approach. urban land, and pursue economic development initiatives. While there are significant regulatory and legislative powers at the central/ 9 McKinsey Global Institute. Urban world: Mapping the economic power of cities. March 2011. http://www.mckinsey.com/insights/urbanization/urban_world 13 Annex 1 – step by step regulatory simplification methodology applied Month 1 activities: administration, scoping and capacity building • Signing a cooperation/advisory agreement with the client. • Finalizing a client’s adoption of the relevant legal and regulatory decisions needed to enable the project to be implemented (establishment of a municipal working group; orders out to all civil servants to cooperate on the project; issuance of strict deadlines and procedures for civil servants to observe during project implementation, and the like). • Delivery of training to civil servants on the process of regulatory simplification and review. • Scoping the administrative procedures10 and analyzing the client’s capacities, followed by the identification and selection of possible counterparts. Month 2-3 activities: regulatory mapping and consultation process • Completing the regulatory mapping exercise of all administrative procedures administered by the client. • Collecting relevant economic data (and the frequency of all requests that the client has, fees, taxes, and any others). • Preparing and launching the consultation with the local business and civil community, seeking their input on the procedures, costs, and issues. Generally, stakeholder consultation is key throughout the entire process, from problem identification to solutions development to actual implementation of the solution. The team consults with both public sector officials at all levels and private sector companies that have undergone the process of receiving permits. This helps validate the problem, identify its scope and magnitude. Talking to businesses provides information that fosters understanding of the limitations and obstacles of specific licenses and permits and their actual implementation on the ground. Month 4-7 activities: recommendations for regulatory simplification • Analyzing the inventory of administrative procedures/licenses/permits. • Analyzing the legal basis for each procedure and identification of inconsistencies within higher-level regulations. • Comparing procedures with other locales within the same jurisdiction, and across jurisdictions with a view to harmonizing requirements. • Drafting recommendations for simplifying selected administrative procedures11 . The recommendations should be accompanied by justifications as to why the proposed solution should be seen as relevant and appropriate, what it will change if implemented and with what results. • Consulting with municipal officials on the quality of all recommendations, seek their feedback and input. • Completing an economic analysis (compliance cost savings) of baseline costs and estimated savings. • Finalizing recommendations for simplification and sending them for client approval. Month 8 activities: implementation of regulatory simplification • Design the E-Registry and complete the data entry. • Client adopts the recommendations for streamlining procedures. • The relevant client governing body/council adopts all necessary decisions (if any) to enable implementation of the proposed recommendations. • Implementation procedures begin. Month 9-12 activities: ensuring the sustainability of activities • Establish client’s permanent regulatory reform bodies’ monitoring work vis-à-vis the E Registry and control of the flow of the new administrative procedures. This body also monitors the introduction of new procedures. • Prepare the final inventory (meaning the final list of valid administrative procedures after the adoption and simplification processes are completed) and update the E-Registry accordingly. • Complete implementation of the proposed changes to simplify procedures for businesses. • Initiate evaluation of the project’s activities. • Verify the E-Registry testing. Launch the E-Registry. • Complete the monitoring and evaluation with businesses and verify implementation. The above activity list is indicative. It is provided only to give an idea of the type of activities the project has been involved in and the usual time line followed in their implementation. Naturally these activities, their sequence and time frames may differ depending on the context. 10 The term administrative procedure includes all permits, approvals, certificates, authorizations, estimates, assignments, consents, and payments of charges and fees, including notifications of the city/municipal administration required by third parties for operation of businesses and the day-to-day life of citizens. 11 Recommendations include reduction in information obligations, documentation; changing form of document submission (from original to copy, etc); reducing processing and waiting times; reducing fees, taxes; eliminating procedure/permit altogether. 14 Closing the Licensing/Permit Regulatory Implementation gap at sub-national level in Bosnia and Herzegovina 15