586870WP0Box351s0June0201001PUBLIC1 PDF
586870WP0Box351s0June0201001PUBLIC1 PDF
586870WP0Box351s0June0201001PUBLIC1 PDF
June 2010
With funding from FIAS, the multidonor investment climate advisory service
©2010 The World Bank Group
1818 H Street, NW, Washington D.C., 20433
This information, while based on sources that the World Bank Group considers to be reliable, is not
guaranteed as to accuracy and does not purport to be complete.
The findings, interpretations, and conclusions expressed in this work are those of the authors
and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the
governments of the countries which they represent. The information in this work is not intended to
serve as legal advice.
The World Bank Group does not guarantee the accuracy of the data included in this work and
accepts no responsibility for any consequences of the use of such data.
The denominations and geographical 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 of the International
Finance Corporation, the World Bank, or other affiliates concerning the legal status of any country, territory,
city, area, or its authorities, or concerning the delimitation of its boundaries or national affiliation.
About the Investment Climate Advisory Services of the World Bank Group
The Investment Climate Advisory Services 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. Funding is provided by the World Bank Group (IFC,
MIGA, and the World Bank) and over 15 donor partners working through the multidonor FIAS
platform.
Acknowledgements
The lead author of this handbook is Laurent Corthay from the Investment Climate Advisory
Services of the World Bank Group. The handbook was co-authored by Lars Grava, Stephen
Rimmer, and Delia Rodrigo from the Investment Climate Advisory Services. The project was
supervised by Peter Ladegaard, Product Leader (Business Operations), Investment Climate
Advisory Services. Early versions of the handbook benefitted from the contributions of
Desiree Allen Aidoo, Florentin Blanc, Christine Bowers, Jackie Coolidge, Sanjar Ibragimov,
Domagoj Ilic, Laura Kaliszewski, Sarah Kitakule, Petter Lundkvist, Lan Van Nguyen, Ivan
Nimac, Kristtian Rada, Patricia Steele, Ksenija Vidulic, and Wendy Werner.
iii
List of Abbreviations
ACTAL Advisory Board on Administrative Burden (Holland)
BRB Business Regulations Bill
CEO Chief Executive Officer
COFEMER Comisión Federal de Mejora Regulatoria (Mexico)
DFID Department for International Development (United Kingdom)
EDBM Economic Development Board of Madagascar
FIAS Foreign Investment Advisory Service
GTZ Gesellschaft für Technische Zusammenarbeit (Germany)
ICA Investment Climate Assessments
IFC International Finance Corporation
MIGA Multilateral Investment Guarantee Agency
M&E Monitoring and Evaluation
NGO Nongovernmental Organization
OECD Organization for Economic Co-operation and Development
RIA Regulatory Impact Analysis
RRS Regulatory Reform Strategy
RRU Regulatory Reform Unit
SCM Standard Cost Model
UDE Unidad de Regulación Económica (Mexico)
WBG World Bank Group
iv
Contents
Index of Boxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi
1.4: Making the Case for Reform: Compelling Presentation to the Government. . . . . 7
2.7: Validating Inventory Findings with Owning Agencies and the Private Sector . . 18
v
2.10: Initial Drafting of a Medium-Term Regulatory Reform Strategy. . . . . . . . . . . . . . . 22
Annexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
vi
Index of Boxes
Box 1: Investment Climate Diagnostic Tools and Their Relevance for Business
Licensing Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Box 2: Checklist of Components for Stakeholder Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Box 3: Typical Stakeholders in Investment Climate Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Box 4: Features of Good Practices for Licensing Administration and Practice . . . . . . . . . . 6
Box 5: Considerations for the Design of a Communications Strategy . . . . . . . . . . . . . . . . . . 8
Box 6: Typical Categories of Activities Subject to Licensing. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Box 7: Standard Cost Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Box 8: Determining the Appropriate Burden Reduction Target . . . . . . . . . . . . . . . . . . . . . . . 17
Box 9: Typical Responsibilities of the Chairperson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Box 10: Three Dimensions for Choosing Reform Committee Members. . . . . . . . . . . . . . . 19
Box 11: Why a Medium-term Regulatory Reform Strategy? . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Box 12: Features of Good Regulatory Administration and Practices . . . . . . . . . . . . . . . . . . 24
Box 13: Using Monitoring and Evaluation Indicators in Business Licensing Projects . . . . 27
Box 14: How to Get Baseline Data When None is Readily Available . . . . . . . . . . . . . . . . . . . 28
Box 15: The “Reversal of the Burden of Proof” Principle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Box 16: Reform Architecture in Madagascar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Box 17: Checklist of Key Features of Good Regulatory Design . . . . . . . . . . . . . . . . . . . . . . . . 33
Box 18: Principles for Imposition of Licensing Fees and Charges . . . . . . . . . . . . . . . . . . . . . 35
Box 19: Principles and Responsibilities for an E-registry System . . . . . . . . . . . . . . . . . . . . . . 42
Box 20: Typical Information to Enter in an E-registry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Box 21: Institutionalizing Regulatory Reform—The Case of Mexico. . . . . . . . . . . . . . . . . . . 47
Box 22: Seven Key Steps in a Regulatory Impact Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
vii
Index of Annexes
Annex 1: Summary Table: Standard Stages and Steps to Implement
Business Licensing Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
viii
Foreword
Reforming business licenses is part of a suite of products delivered by the World Bank
Group’s Investment Climate Advisory Services, under the Business Operations prac-
tice. The Business Operations team has the responsibility of bringing such products as
licensing, inspections, and construction permits to maturity, through a combination of
knowledge management and pilot projects, with the objective of developing products
that are scalable, easily replicable, and tailored to enhance the impact of IFC Advisory
Services.
The approach to reforms highlighted in this handbook fits into the broader Policy
Framework for Business Licensing Reform and Simplification1. The Framework Paper
provides the context for business licensing practices; establishes the key principles and
concepts underpinning licensing; and gives an overview of licensing reform objectives,
issues, and processes. It includes an overall introduction to the use (and abuse) of busi-
ness licenses, and a further elaboration on the way business licensing reforms can be
organized.
1
See World Bank Group (2010).
2
Available at www.fias.net/ifcext/fias.nsf/Content/BRG_Home_page
ix
x How To Reform Business Licenses
These publications and an online version of this handbook will be made available
publicly over the coming months on the Investment Climate Advisory Services’ external
website.
The Framework Paper on Business Licensing Reform and Simplification establishes the
general framework and principles guiding the approach detailed in this handbook4. It pro-
vides the rationale for government regulation, for licensing as a regulatory tool, as well as the
principles and assumptions underpinning the Investment Climate Advisory Services’ approach
to licensing reforms. The approach is designed to provide solutions to systemic problems
encountered in many client countries, where the licensing systems have often grown out of
control, across sectors and levels of government.
3
See www.enterprisesurveys.org.
4
Available at www.fi as.net/ifcext/fi as.nsf/Content/BRG_Home_page
xi
xii How To Reform Business Licenses
carried out in a comprehensive way, but may adopt a more narrow focus. However, there
is much to be gained from a comprehensive approach that targets the whole licensing
system.
In particular, there is an efficiency argument supporting that view, whereby one process
achieves what would require multiple interventions otherwise, with high transaction costs.
Additionally, on efficacy grounds, bold successes are more likely when not giving in to
special interests. Finally, a comprehensive approach makes it possible to address some of
the key long-term, systemic issues with the regulatory system (not just licenses), thus ensur-
ing a healthy flow of future regulations.
The attachments included here come from projects that have been implemented
recently by the World Bank Group. One of the objectives of this handbook is to centralize
5
See Annex 1 for the Summary Table.
Introduction xiii
knowledge gathered by World Bank Group teams and ensure cross-fertilization between
regions. The Business Operations team is therefore always keen to consider project docu-
ments other reformers may have used, that could help inform other practitioners6.
This print version gathered essential documents and references available as it went to
press. It has been prepared in print format for cases where a hard copy is the more practical
format. It is planned that an online version accessible to all users will be made public over
the coming months.
6
Please e-mail Laurent Corthay at lcorthay@worldbank.org for questions and comments.
Chapter 1: Project Preparation
and Diagnostics
This first stage involves conducting a preliminary assessment of the licensing system
through a review of existing diagnostic work, as well as the scoping mission in the country.
In this stage, the potential for reform as well as key stakeholders will be identified, and
a broad implementation plan will be drawn. Finally, this stage will seek to build support
for the proposed reform and establish a working relationship with a direct counterpart in
government.
1
2 How To Reform Business Licenses
For a comprehensive coverage of stakeholder analyses, please refer to IFC (2007). For
quick reference points, please find in Box 2 a checklist of components for a stakeholder
analysis, as well as a list of typical stakeholders in investment climate or business environ-
ment reforms.
Business licensing reforms typically involve a wide range of stakeholders, from both the
public and private sectors. The categorized checklist7 provided in Box 3 below, lists the key
players commonly involved in regulatory reforms that can serve as reference points in the
preparation of the stakeholder outreach strategy.
One key element in this step is to identify adequate champion(s), among the strong,
influential proponents of the reforms. Successful reforms will require institutional cham-
pions with the technical capacity and the willingness to battle with the many vested
interest groups opposed to changes. As highlighted in Kikeri et al. (2006), long and com-
plicated reform processes require the endurance and conviction of a group of commit-
ted individuals who persist with policy changes, despite changes in the political landscape.
Champions should have close ties or influence with the highest possible level of political
decision-making. Examples include:
■ Mexico8: a small group of technocrats leading the first deregulation unit (UDE)
became a major lobbying force, which later became a commission backed by law
7
IFC Small and Medium Enterprise Department; IFC (2007).
8
See also Box 21 for more on the case of Mexico in institutionalizing regulatory reforms and the role of UDE.
4 How To Reform Business Licenses
Identifying champions is not a one-time activity, but should be an ongoing task for
project teams, as political and economic conditions may change rapidly, thus affecting
stakeholders’ interests and relative influence. Comprehensive reforms may not happen in
the absence of strong champions.
Kikeri et al (2006) provides more on this — including further references — based on the
study of six successful regulatory reform cases. See also Criscuolo, Palmade (2008) for more on
the critical role played by reform teams and champions in successful regulatory reforms.
To assess the quality of licensing administration and practice, the checklist in Box 4
below may be used in the initial diagnostic phases, as well as later on in the review of
licenses and licensing practices, to identify where the licensing regime may feature defi-
ciencies that require attention. The checklist is ordered around the four main features of the
process for obtaining and administering licenses.
This handbook is conceived with a specific focus on business licensing practices and admin-
istration. It does not target the reform of inspections system, at least not in the first stages of
a business licensing reform project. This may come as a surprise, since in some ways, licens-
ing (i.e. the granting of an ex ante authorization to perform a specific activity) and inspections
(i.e. the verification ex post that the activity is performed according to standards) are two
sides of the same medal. Both need to work well in order to ensure a regulatory environ-
ment that is conducive to investment by reducing transaction costs, providing certainty
and encouraging healthy competition.
This handbook takes a staged approach, which starts with a comprehensive, fast-track
reform of the licensing system, followed by the introduction of mechanisms that will ensure
6 How To Reform Business Licenses
2. Approval
• Regulators should assess and respond to applications for licenses in a timely manner,
and follow relevant policies and guidelines.
• Assessment should employ risk-based methodology.
• Decisions should be fully documented and subject to a credible appeals process.
• Internal processes should minimize scope for conflict of interest and corruption (such as
review of decisions by peers or more senior staff).
3. Conditions
• Business should have a clear understanding of licensing conditions, obligations, and
their rights.
• License conditions and obligations should be the minimum necessary to ensure
compliance.
• Regulators should be mindful of compliance burdens on business and have effective
strategies to minimize compliance burdens.
• Regulators should have internal systems and processes to monitor and report on
compliance with licensing requirements.
• Compliance monitoring should include a clear documented strategy, risk-based work
program, and timely, evidence-based and objective compliance assessment processes.
4. Enforcement
• Enforcement should be commensurate with the risks generated by non-compliance and
the compliance history of the business.
• Regulators’ response should be timely, proportionate, lawful, and properly documented.
• Enforcement strategies should be effective in ensuring compliance but not impose on
business unnecessary obligations, costs or risks.
• There should be a clear plan to manage and assist the return of the business to
compliance.
• Strategies should be in place to minimize the risk of corruption, including clear and
credible appeals processes (such as review by a higher authority and judicial review).
Sources: OECD (1995), OECD (2002); Bureau of Industry Economics (1996a); Bureau of Industry Economics
(1996b).
Project Preparation and Diagnostics 7
that the stock of existing licenses, as well as the flow of future licenses, match standards of
good regulatory quality. The proposed approach would recommend exploring the poten-
tial for the reform of the inspections regime once early successes of the licensing reform
have been achieved. Indeed, licensing may be used as one of the better entry-points that
can lead to broader and deeper reforms of the regulatory regime.
Sections 2.10 and 5.1 deal with drafting and implementing a medium-term regulatory
reform strategy. This would possibly include the improvement of the inspection system as a
key objective. Also, more details can be found in IFC (2006b), which provides guidelines and
good practices for business inspections reforms.
■ Efficiency: evaluating all licenses through one reform process, proposing one
reform package, and implementing a series of changes at one time, through one
process, rather than setting up a new reform machinery, with heavy transaction
costs every time.
■ Efficacy: not giving in to special interests, which will emerge for almost every
license or sector where reforms are proposed. A piecemeal approach (e.g., one
sector after the other) gives special interests much more leverage to impede
reforms from happening.
■ Addressing systemic issues: comprehensive approach allows for clean-up of the
whole system, and the establishment of tools (e-registry) and institutions such as a
regulatory reform unit, which help solve some of the systemic problems that led to
poor business regulations (fixing the stock of valid regulations through the registry,
and ensuring a healthy flow of future regulation through the regulatory reform unit).
9
For more on this, please refer to World Bank Group (2010).
8 How To Reform Business Licenses
Practice in transition and frontier countries suggests that the requesting party should
be as high in the political hierarchy as possible to increase the chances of success. When
feasible, project teams should explore the possibility of engaging with the President’s office
(or the Vice-Prime Minister’s office). A high level of political commitment should provide
strong incentives to the regulatory agencies and ministries affected by the reform activities
to take an active part in the process. This could be considered as a first signal to them.
Box 5 lists key considerations that should be taken into account when designing a
strategic communications strategy10. Please also refer to IFC (2007) for a detailed handbook
10
This list is drawn and adapted from World Bank Group (2007) pp. 13–14.
Project Preparation and Diagnostics 9
BOX 5 (continued)
• Organizing public events. Invite entrepreneurs to talk about existing problems, as
well as what improvements they see. Results from the Standard Cost Model and the
business surveys could be presented at these events. Invite the media and always leave
ample time for questions. Do not organize only with the business associations; invite
entrepreneurs directly. Communication works both ways in such events; they also allow
businesses to explain their priorities to government.
• Using comparisons with other countries. Businesses and citizens are generally
patriotic, regardless of how they regard their government’s effort to reform.
Comparisons with the regulatory burdens in other countries, especially in areas where
the country is reforming, would catch the attention of entrepreneurs and media. They
are especially good for newspaper (print) stories where figures can be shown.
• Talk about future reforms. Start communicating early on about the expected results
and sustain the message as the reform progresses. The longer the message stays in the
news, the more likely it is that businesses will notice. The communication just needs to
be clear and direct on when the announced measures will be implemented. This is not
just good marketing. Reforms are only useful if businesses learn how to take advantage
of them. And businesses will only learn if the news has reached them.
on strategic communications for business environment reforms. Also, IFC (2008) Using Com-
munications in Tax Simplification Projects, provides a shorter note with cases from business
taxation reforms in two countries, which provides useful lessons learned, in spite of not
being licensing-specific.
Chapter 2: Establishing a Tailored
and Focused Reform Program
This stage establishes the key elements of the licensing reform program, taking the coun-
try’s specific needs into account. One central element is the elaboration of a comprehensive
inventory of existing licenses, defined in broad terms. This inventory and its findings con-
stitute the main data upon which analyses and review will be conducted. It will also help
establish a baseline for the project, and a quantitative reform target to be achieved by the
end of the project.
This stage will also seek to establish the so-called “reform infrastructure,” including a
committee with a strong political mandate that will have the responsibility and authority to
conduct the reform, as well as identify a legal strategy for implementation. A comprehen-
sive licensing reform requires a dedicated, cross-ministerial group of technical experts, at
the core of government, with a strong support from the top of the government’s pyramid.
■ scope of work and reform infrastructure (i.e., the fact that a reform committee will
be established to implement the reform and its mandate);
■ endorsement of the criteria for the review of licenses (i.e., legality, efficiency,
necessity, and business-friendliness); and
■ request for cooperation of all licensing authorities to the reform process (reversing
of burden of proof requires active participation by all authorities issuing licenses).
11
12 How To Reform Business Licenses
At a minimum, the goal is to ensure that all the data necessary to build the inven-
tory can be obtained from the relevant parts of the administration. However, their
active involvement in the reform process (including reviewing the existing regula-
tions and implementing a streamlined system) will be crucial. It is therefore impor-
tant to engage with the regulatory bodies early on, and prepare the groundwork
for the upcoming reform activities, such as the creation of a cross-ministerial reform
committee.
Filling out the template is often performed by a local consulting firm, preferably one
experienced in helping businesses obtain a wide array of licenses. The ideal local consult-
ing firm will also have experience in conducting surveys, and an understanding of the SCM
methodology. Terms of Reference for the local firms12 have been elaborated. Note that con-
sultants building the inventory will require proper training before the start of the exercise, to
11
See Annex 2 for the information collection template.
12
See Annex 3 for an example of TORs for the elaboration of the inventory of licenses by local consultants.
Establishing a Tailored and Focused Reform Program 13
ensure that data will be captured consistently (if different people are involved) and in a way
that is appropriate for SCM analysis.
BOX 6 (continued)
11. Provision of liberalized utility services: production, transmission, distribution and
supply of thermal energy and electricity
12. Communication: provision of telecommunication services; broadcasting; postal
services
13. Real estate: land surveyors and real estate valuators; sometimes agents
14. Customs: activities of service providers (customs brokers); control over premises
presenting fiscal risks (duty-free trade, storage of goods without customs clearance)
15. Gambling and Lottery: operation of gambling establishments and organizing lotteries
16. Mining and resource extraction
17. Other (such as provision of employment services, certifying the means of
measurement, operation of crematoria, sale of fireworks, and so on)
A decision should also be taken whether the inventory should cover licenses, permits
and authorizations administered at the subnational level13. This may be essential, in fact,
as a substantial share of administrative burden faced by businesses may result from
subnational licenses and fees. Including them in the inventory would make sense from
a company’s point of view, as businesses simply cannot legally operate without having
obtained all the required licenses, regardless of the level at which they are administered.
However, in most countries where provincial and municipal governments have the com-
petency — whether de jure or de facto — to introduce new regulations, this task could be
enormous if one aims to be exhaustive (especially if licenses differ from one municipality
to the next!). In such cases, the costs and benefits of a comprehensive inventory at the
subnational level would likely suggest selecting a manageable set of economic centers
to provide a good picture of what the licensing situation and practices might be in other
provinces and municipalities.
13
Refer to section 3.5 below for more details on this.
Establishing a Tailored and Focused Reform Program 15
The original SCM methodology has been most successfully used in relatively data-rich
and high-capacity countries. However, with certain analytical and methodological modifi-
cations, the SCM has proven to be a useful and relatively low-cost method for estimating
administrative burdens in countries where data is incomplete and resource capacities are
limited. The Investment Climate Advisory Services has been reviewing the application of
the SCM in different client countries in the developing world, and the findings and lessons
are presented in World Bank Group (forthcoming) Applying the Standard Cost Model in Devel-
oping and Transition Countries: Issues for Practitioners.
14
See Annex 4 for an example of TORs for the application of the Standard Cost Model to business licensing
reforms.
15
See Coolidge (2010)
16 How To Reform Business Licenses
countries, ranging from Madagascar to Serbia. It can apply to both licensing and tax require-
ments. It aims to:
■ estimate the overall burden (compliance costs and risks) of licensing, permits and
inspections on the formal business community, including the costs of informal
payments and the cost of hiring external assistance;
■ document the range and distribution of experiences of businesses in those
jurisdictions with the relevant procedures, including extreme delays; and
■ create a baseline (after reforms have been enacted) against which one can
estimate the relevant aggregate benefits, cost savings, and risk-reductions in those
jurisdictions due to reform of licensing and permits.
In addition, the survey captures the actual experiences of firms, including common
problems that are usually assumed away by the SCM, such as the time required and difficul-
ties encountered by firms trying to understand the requirements, the tendency of bureau-
crats to return application forms and demand additional documentation, and the practice
of firms resorting to informal payments and “connections” to complete the procedures or
to avoid delays. The survey targets a much larger and more representative sample of firms
than is usually accommodated in the SCM. It is, however, more costly and requires more
time to be carried out properly.
Another advantage of the survey approach is that it allows for targeting questionnaires
to specific licenses that may have been identified as particularly important, thereby refining
the diagnostic findings. As a complement to the SCM, it also provides a crosscheck of the
information gathered in the inventory.
Project teams can find out more on the SCM methodology by taking an introduc-
tory course on the United Kingdom’s Department for Business Enterprise and Regulatory
Reforms (BERR) Web site16. The course provides a comprehensive introduction to the meth-
odology, as well as its application to the reform process.
16
See www.scmtraining.berr.gov.uk.
17
See World Bank Group (2007), page 6. The Dutch Administrative Burden Reduction program is one of the most
innovative initiatives in cutting red tape, and its model has been followed by several other countries.
Establishing a Tailored and Focused Reform Program 17
The cost reduction target is set against the baseline measurement of administrative
costs imposed on businesses (see Box 8), which is commonly calculated using the SCM
methodology18. Other methods can be envisioned, such as the use of time-and-motion
studies on standard businesses and the introduction of business surveys to measure annoy-
ance costs and target the reforms.
The target gives regulatory agencies an objective of reducing the administrative costs
imposed on businesses by the licenses they administer. The target should be set agency-
by-agency with no a priori exemptions, and to be achieved within a set timeframe. The
cross-ministerial reform committee should work with regulatory agencies in helping them
identify cost reduction measures (such as simplification of procedures, elimination of docu-
mentation requirements, and reduction of the amount of fees).
The chairperson of the reform committee is also key to a successful reform. Suitable
candidates should be identified and detailed Terms of Reference19 can be drafted along
the lines outlined in Box 9 below. The amount of work and the remuneration should be
determined. The chair should have a sound knowledge of law and economics, includ-
ing regulatory reforms. He or she should be effective, efficient, and reform-minded. Prior
18
Refer to Section 2.4 for more details on the Standard Cost Model.
19
This includes The Netherlands, Denmark, and the Czech Republic.
20
This includes Burkina Faso, Kenya, Madagascar, Rwanda, and Zambia.
21
See Annex 5 for an example of Terms of Reference for the Chairperson of the Reform Committee.
18 How To Reform Business Licenses
experience shows that the chair should be influential within the country’s legal system
to fulfill the tasks.
The core task of the members of the reform committee is the review of licenses. This
task consists of assessing the legality, necessity, and appropriateness of licenses and pack-
aging this assessment into the final recommendations. Before the assessment, workshops,
hearings, interviews and seminars may be necessary to come to a conclusion.
The goal is to finalize the inventory and generate consensus on the calculations and
estimates made for each license, so that a baseline that is credible and acceptable to the
various stakeholders can be established for the reform. Opening the inventory to all stake-
holders for criticism and comments is also useful, in that it demonstrates transparency of
process and openness of the reform committee to different opinions.
information. The key purpose of the minutes is to document which consensus was reached
and by whom. The minutes will be shared with participants after the workshops and
endorsed by them as representative of the discussions and outcomes.
Quick wins differ from “high-priority” licenses22. The former, as mentioned, can be
marginal licenses that do not have a lot of impact on private enterprise. Priority licenses,
however, are of strategic importance and generally affect a high number of businesses.
22
See section 2.9
Establishing a Tailored and Focused Reform Program 21
Reforming them could have an important impact on the private sector. However, reforms
of priority licenses are likely to be either controversial or technically complex, and would
therefore be best addressed within the framework of the broad-based licensing reform
effort.
The proposed quick wins should be validated by the private sector through work-
shops, where licensing agencies and users can share views on how to improve the system.
Workshops should be organized along thematic lines and led by the reform team. Concrete
quick-win proposals prepared by the team should be used as a starting point for discussion.
Agreed reform actions should be recorded in a document that can serve as minutes of the
outcomes of the workshops and which focuses on implementation.
Such licenses are generally referred to as “high priority,” and usually feature the follow-
ing characteristics:
23
This section draws heavily upon World Bank Group (2007).
24
The Standard Cost Model allows for general assumptions to be made to estimate costs across the licensing
system as whole, by, for instance generalizing procedures into standardized steps. This provides a cost-efficient
way of estimating overall compliance costs.
22 How To Reform Business Licenses
The detailed burden measurement should focus on direct costs, such as costs of capital,
operating, paperwork and time incurred in complying with regulations. While useful for the
political debate, the quantification of risks and benefits should only be used on a select
basis, where the debate is heated or where data is more readily available.
This broader regulatory reform strategy25 should be drafted early on, to outline a
general direction for the reforms that is consistent with and complementary to the ongoing
licensing reforms. The strategy should then closely follow the implementation of licens-
ing reform and build on its achievements, such as the establishment of an e-registry26,
for instance. Potential focus areas for a broader reform strategy can be found in the gov-
ernment’s growth and poverty reduction strategies. The reform strategy could involve
expanding on regulatory issues prioritized in previous diagnostics but not addressed by the
licensing reform. The strategy could also include capacity-building measures for the public
and private operators.
25
See Chapter 5 for more on broadening the scope of reform beyond the licensing system.
26
See section 4.3 for more on e-registries.
Establishing a Tailored and Focused Reform Program 23
To make a preliminary assessment of the quality of the regulatory framework, the fol-
lowing checklist in Box 12 developed by the OECD and several national governments may
be used. It should help identify areas where the design of the regulatory framework is defi-
cient and requires further improvement.
Broader regulatory reforms are likely to encompass business inspections as well, and
therefore should be considered within the framework of a medium-term regulatory reform
strategy. After all, licensing and inspections constitute the two faces of a same coin. Regula-
tions and inspections to enforce them are central instruments in the government’s toolbox
to protect public interests. Both need to meet regulatory quality standards to ensure a
sound business environment.
IFC (2006b) examines good practices of effective business inspections, and Coolidge
(2006) offers models for inspections reform that reduce the compliance burden and
enhance standards.
27
World Bank Group (2009), Lessons for Reformers: How To Launch, Implement, and Sustain Regulatory Reform. An
Analysis of Six Case Studies In Developing and High-Income Countries.
24 How To Reform Business Licenses
Information management
• Clear guidance on what data should be stored and how it should be stored
• Systems ensure appropriate data captured, stored, used properly, and protected
Relationship management
• Communication with stakeholders is open, transparent, responsive, and cost effective
• Complaints and appeals are managed quickly, effectively, and transparently
• Relationship outcomes (often defined in service charters and codes of conduct) are
measured and reported on in a transparent manner
Resourcing issues
• Regulators rarely have all the resources required to meet stakeholder expectations so
resources should be allocated effectively and efficiently to high priority risks
• Cost recovery through fees and charges should only be applied where businesses
benefit directly from regulations and should only transparently recover direct costs
• Fees and charges should be avoided where the regulations generate significant
community benefits or generate other risks and costs (that is, cross-subsidization or
corruption)
Addressing non-compliance
• Response to non-compliance should be commensurate with the risks generated by non-
compliance and the compliance history of the business
• Regulators’ response should be timely, proportionate, lawful, and properly documented
• A clear plan is in place to manage and assist the return of the business to compliance
Establishing a Tailored and Focused Reform Program 25
BOX 12 (continued)
Responding to adverse events which may cause harm
• Regulators should try to ensure that they are aware of adverse events when they occur,
are ready to respond where appropriate, and have the ability to review processes to
respond to any lessons learned
Sources: OECD (1995), OECD (2002), Australian National Audit Office (2007)
When reformers plan their legal strategies for adopting and implementing licensing
legislation, they should consider bundling the licensing-related reform bills and including
them in the annual budgeting process.
As discussed in the Policy Framework Paper on Business Licensing Reform and Simplifi-
cation28, the advantages of bundling are based on the premise that vested interests (which
may lose out from the licensing reforms) will have a more difficult time successfully mobiliz-
ing resistance when the reforms are presented in a single, comprehensive package. In con-
trast, gradual one-by-one implementation through a series of revisions of specific acts and
regulations would give vested interests better time and focus to mobilize resistance. Bundling
may happen at several occasions, the most important one when Cabinet approves recom-
mendations for comprehensive licensing reform. Ideally the reform champion should put the
package forward as “take it or leave it.”
After this, legal implementation may happen through executive orders of various kinds,
and through Act(s) of Parliament. For the latter, a good solution is through an “omnibus” bill
(that is, as a Business Licensing Repeals and Amendments Act), rather than a long series
of individual revisions to specific parent acts for the reasons noted above. The bundling
approach may strengthen the likelihood of implementation of the licensing reforms, since
implementing instructions can be disseminated at once and systematically to regulators
and other government bodies.
28
See World Bank Group (2010).
26 How To Reform Business Licenses
The advantages of including licensing reforms in the annual budgeting process are
based on the premise that governments most often have a constitutional obligation
(and other good reasons) to pass the budget by a certain date. It is a widely recognized
practice for a range of policy measures with state budgetary implications to be passed
as part of the passing of the broader budget process. In other words, if the licensing
reform can become part of policy measures implemented within the budget, there is a
good chance that it will pass with the budget and by a specific deadline. Furthermore,
it is unlikely that the parliament will block a finance bill because of a licensing reform.
The budgeting approach may also strengthen the likelihood of implementation of the
licensing reforms, since government will follow up and there are established measures to
ensure compliance.
It is important to note that the above methods can and must comply with good gov-
ernance principles, such as transparency and consultations with affected parties. In fact,
consultations can still take place at the various key stages of policy formulation, such as
initial consideration of comprehensive licensing reforms, drafting, and revisions.
Project teams should refer to IFC, GTZ, and DFID (2008), the handbook of monitor-
ing and evaluation for investment climate reforms, which provides general guidance and
practical tools to design and implement an M&E plan. This step focuses on identifying the
appropriate indicators and targets. These should be agreed upon with the clients, and lever-
age available data as much as possible.
Also note that IFC has identified a set of indicators applicable to business licensing
reforms (Box 13). Contextualizing these indicators is essential in tailoring their use to specific
projects. Indeed, when tracking reforms or providing proof of documentation, the corre-
sponding components and activities will provide the context that is not captured by the
indicators themselves.
Outputs
• Number of entities receiving advisory services
• Number of reports (assessments, surveys, manuals) completed
• Number of new laws, regulations, amendments and codes drafted or contributed to the
drafting
• Number of procedures, policies and practices recommended for improvement or elimination
• Number of media appearances
• Number of participants in workshops, training sessions, seminars, conferences, and
other events
• Number of women participants in workshops, training sessions, seminars, conferences,
and other events
• Number of participants reporting satisfied or very satisfied with workshops, training
sessions, seminars, conferences, and other events
Outcomes
• Number of recommended laws, regulations, amendments and codes enacted
• Number of recommended procedures, policies and practices that were improved or eliminated
• Average number of days to comply with business regulation
• Average official cost to comply with business regulation
• Number of entities that implemented recommended changes
• Number of businesses completing a new or reformed procedure in a given jurisdiction
Impacts
• Value of aggregate private sector savings from recommended changes (US$)
• Number of formal jobs
Source: IFC Advisory Service M&E intranet website. See IFC (2008b) Standard Core and Supplemental Indicators
for Business Enabling Environment Projects for detailed definitions of each indicator
Elaborating a specific and well-considered logical framework is the first step in devel-
oping a meaningful M&E plan. Ideally the M&E framework should be an extension of the
projects log frame and vice-versa. When it is done upfront, it makes the M&E easier to plan
and execute. In addition, it makes it easier to tailor standard indicators to the project.
Compliance Cost Surveys provide a complementary approach to the SCM, in terms of estab-
lishing a baseline. One advantage of the survey approach is that it allows for targeting question-
naires to specific licenses that may have been identified as particularly important, thereby refining
the diagnostic findings, as well as tracking results.
29
See section 2.4 for more on the Standard Cost Model and Compliance Cost Surveys.
Chapter 3: Review of the Licenses
This stage constitutes the bulk of the actual reform work: where identified licenses are
reviewed and recommendations for each of them are made, through memos prepared by
the reform committee to be approved by the government. This should result in a decision
to keep, eliminate, or streamline each individual license, with identified means to imple-
ment that decision.
This process will be labor-intensive for the reform committee, as well as for the regula-
tory agencies that will be actively involved in the review of the licenses they administer.
Managing information flows will often be challenging, and therefore careful attention
should be dedicated to establishing effective communication mechanisms, including a
database to store the feedback and information provided by the regulatory agencies.
29
30 How To Reform Business Licenses
Box 16 provides an example of the reform architecture for Madagascar. In this setting,
the reform committee is made up of a group of technical experts, who work with the regu-
latory agencies to identify and propose burden-reduction measures. These measures are
endorsed by the board of a cross-ministerial agency — the Economic Development Board
of Madagascar (EDBM) — which has the mandate to attract investment and improve the
30
See section 2.5 for more on quantitative target setting.
Review of the Licenses 31
Council of
Government
EDBM
Board
EDBM
Secretatiat
country’s business environment. The EDBM submits these burden reduction measures as a
package for approval by the Council of Government.
The review criteria provide a basis for the committee to assess whether the license
places a fair burden on businesses or should be simplified or eliminated. During the review
process, the committee should address the following questions:
■ Is the license legal? Is there a clear and sufficient legal basis for the license? If the
answer to this question is no, the license should be eliminated.
■ Is the license necessary? Necessity is defined as the need to have in place
ex-ante regulation in the form of a license for health, safety or environmental
reasons. If the answer to this question is no, the license should be eliminated,
32 How To Reform Business Licenses
A detailed checklist with the key features of good regulations can be used to guide
the review of the business licenses. Each regulatory instrument should feature the aspects
described in Box 17 below.
In the course of the review, workshops, seminars, or hearings might be set up to address
unclear or sensitive matters. In Kenya, for example, the reform committee often consulted
with the private sector to set priorities, which ensured the greatest impact on the investment
Review of the Licenses 33
Communicated effectively:
• written in clear and concise language
Enforceable:
• provides minimum effective incentives for reasonable compliance
• able to be monitored and policed effectively
climate. These consultations were in many instances organized as public-private sector con-
sultative forums in which tentative decisions were discussed openly. The committee had pre-
pared reports on each consultative forum, which were distributed to the participants and
other public bodies. It is important that such forums be well organized and publicized, and
34 How To Reform Business Licenses
that delegates be given an opportunity to contribute freely. Experts can be invited to help
lead the discussions and also to explain controversies.
To support sectoral reviews, the World Bank Group has produced a set of sectoral notes
that analyze business regulations in a few key industries (including tourism31, mining32, and
construction permits)33. These sectoral papers are based on case studies and aim to provide
principles as well as examples of good and bad licensing practices.
However, in practice, the inappropriate use of licensing fees and charges as revenue-
generating instruments, or quasi-taxes, has been observed in many countries. The prolif-
eration of such quasi-taxes tends to be an issue particularly (but not exclusively) at the
subnational level, given the trend towards decentralization, whereby subnational govern-
ments are expected to deliver an ever wider range of services. They are not always granted
the fiscal resources they need to finance these local public services, and must therefore
rely on other, “parafiscal” sources. This term is inspired by the French word “parafiscalité,”
31
See World Bank Group (forthcoming). “Licensing Case Studies: Tourism Sector.”
32
See World Bank Group (forthcoming). “Licensing Case Studies: Mining Sector.”
33
See Moullier (2009).
34
See World Bank Group (forthcoming). “Policy Framework for Business Licensing Reform and Simplification.”
Review of the Licenses 35
• on a cost recovery basis, where licenses generate direct benefits for the business
receiving the license, such as a license accreditation resulting in business being able to
charge higher prices; and
• where businesses generate negative effects of the broader community, such as
pollution.
However, where licenses generate broader benefits for the community (such as enhanced health,
safety or security outcomes), imposing licensing fees and charges will be inappropriate and inflict
a wide range of costs on the community. Indeed, in such cases license fees and charges essentially
impose a “tax” on services provided by business that benefit the broader community.
Where there is a broader policy objective such as improving health, safety, or security, license
fees and charges can be applied in the short term where:
• revenue collected generates identifiable health, safety or security benefits for the
community that clearly exceed the direct and indirect costs on businesses and the
community in collecting license fees and charges; and
• licensing revenues are collected more effectively and at lower cost than broader
taxation measures.
However, in practice these conditions are unlikely to be met, especially where there is a function-
ing broadly based taxation system in place. Indeed, in this situation the taxation system should be
strengthened so that inefficient and costly licensing fees and charges can be reduced over time and
replaced by more efficient revenue mechanisms, such as strengthened intergovernmental transfers
or an appropriate local business tax.
which encompasses the revenue sources of line ministries, state agencies, and subnational
entities, which do not flow in the Treasury accounts.
The use of licensing fees as fiscal instruments has practical implications for licensing
reforms. Indeed, the elimination of such licenses, or reduction of the fees and charges associ-
ated with them, will have an impact on the revenue-raising capacity of the concerned local
governments and regulatory agencies. This could seriously damage their ability to deliver
essential public services. Additionally, government entities whose revenue base would be
eroded by the reforms are likely to strongly oppose change, sometimes for valid reasons. It
is therefore important for reformers to ensure that the removal of inefficient licensing or
revenue-raising practices is complemented with efforts to compensate the local governments
and improve revenue collection mechanisms.
The reform committee would need to provide options, maybe with outside assistance, to
make up for these losses. Ideally, this would be done in conjunction with tax reform, through
the simplification of the regime. These activities would imply close cooperation with other
36 How To Reform Business Licenses
reform work on taxation, and the relevant government bodies (such as the Ministry of Finance,
the Ministry of Local Administration, and provincial and municipal governments).
A recent short paper35 explores this topic in more depth, and provides an approach to
dealing with this issue, including an overview of potential efficient revenue sources for local
governments.
In the Balkans, IFC has partnered with subnational governments in applying the SCM to
local regulations in Bosnia and Herzegovina, Montenegro and Serbia. This approach follows
a similar model as the one introduced in this handbook for national regulations. Please
refer to Thomas, Cordova-Novion, Batic (2009) for more on the Western Balkans model and
experience.
The final report of the review will show which licenses will be abolished, streamlined, or
kept without changes. The final report will be subject to a validation workshop with public
and private sector representatives. After discussions and the submission of written com-
ments, the reform committee will revise the final report to include valid inputs. In Kenya,
the final report included decision memos, a list of licenses issued, a list of consultations
made, and other relevant details. The committee will submit the final report (including all
revisions) to the government for approval.
35
See Corthay (2009).
36
See Annex 6 for an example of the type of information required in a Decision Memo.
Review of the Licenses 37
the relevant authorities (such as Parliament, ministries and other stakeholders) are fully
briefed on and endorse the reform proposal.
In that context, the use of press and other media may prove crucial to securing a suffi-
cient support base. Please refer to section 1.6 for more on using communications to support
the reform process.
Chapter 4: Reform of the Licensing
System
In this stage, once a decision has been reached for each of the licenses, the changes must
be implemented through the law and other types of regulation. The legal basis for each
license will have been identified early on (in the inventory), and it will now be time to draft
(or redraft) these pieces of licensing legislation, subject to the approval of the relevant
legislative bodies.
But legal changes are not the end of the story. For actual reforms to be effective on the
ground, they must be felt by businesses. To achieve this objective, this stage will also seek to
build regulators’ capacity to administer reformed licenses. Also, in order to inform users and
enhance legal security, an electronic registry containing all valid (and reformed) licenses will
be established.
The best-suited legal implementation mechanism will have been identified previ-
ously37. The type of legislation used for the implementation must be decided according to
the country’s specific legal system. A law might be necessary or a decree may be sufficient.
In general, the faster the adoption of the legal instrument can be achieved, the better.
One proven method for tackling comprehensive licensing reforms is to bundle the
licensing-related reform bills and include them in the annual budgeting process. This
37
See section 2.11 for more on the legal strategy.
39
40 How To Reform Business Licenses
method ensures that there is adherence to a specific deadline, government scrutiny of the
budgetary impact of the proposals, and one-time review of the bills in a comprehensive
package rather than on a piecemeal basis. The bundling approach also strengthens the
likelihood of impact, since implementing instructions can be disseminated at once and
systematically to regulators and other government bodies.
This approach was successfully adopted in the Netherlands, as well as in Kenya, for
example. World Bank Group (2007) identifies it as one of the key success factors of the Dutch
regulatory reforms: “the program’s innovative design — a 25 percent target reduction in
regulatory costs, a link between regulatory reforms and the budget cycle, and the establish-
ment of the Dutch Advisory Board on Administrative Burden (ACTAL) as an independent
watchdog of the reforms — lies behind the success. These features are now being adopted
by other countries around the world.”
Reforms are about changing behavior, not just changing the law. Reforms will be
effective and have an impact only when the new regime is fully implemented by regulatory
agencies (the owners of the new processes), and businesses are fully aware of the changes,
thus adjusting their behavior to the new regime.
This will likely mean significant changes in the way regulatory agencies function:
processes will have to be re-engineered; departments reorganized; forms rewritten; job
descriptions adjusted and officials trained accordingly; information made publicly available;
and other such measures.
Outreach to the business community, the primary beneficiary of the reforms, will be
crucial to ensure effective implementation. Fully aware of the changes, businesses (and
business associations in particular) may play an important role in ensuring that the new rules
are implemented. By expecting change, businesses may also help speed up this process. As
mentioned in Section 1.6, relying on official communication channels, such as speeches
by ministers, reports to parliament, Web site information, and stories on the government’s
Web site will not be enough. A more effective communications strategy will consider the
following (see Box 5 for more):
It is hard to estimate the time and effort needed to complete this step. It should be
made clear that the step can be particularly tedious and time-consuming depending on
the number and depth of the reforms.
At a later stage, the content of the e-registry can be gradually expanded to include
other types of business regulation. The formats of forms available online can be progres-
sively developed to self-generate business data already provided. The content of the
e-registry should also be made electronically available to regulating authorities, thereby
enabling regulatory transactions to be carried out online.
The functions of the e-registry, once established, will be almost exclusively of a techni-
cal nature. Primary tasks will consist of entering licenses (and other forms of business regu-
lation) that have passed the technical, regulatory, and political screening process into the
e-registry. The functions of the e-registry, described in Box 19, will be distinctively different
from the scrutiny functions to be exercised by a regulatory reform unit (described in the
section below).
This step should explore links with other e-government initiatives. Additionally, it is
important to note that in principle, it will require substantial contribution in-kind from
government, including staff working at the registry.
When making an entry about a license into the register, certain information must be
submitted by the regulatory authority to the registry along with the name of the license itself.
Based on discussions in Kenya, international experience in general and special input from
42 How To Reform Business Licenses
the lessons learned in Mexico by the Federal Commission of Regulatory Improvement38, Box 20
includes suggestions for information that might be entered in the register for each license.
38
See: www.cofemer.gob.mx for the official Web site (in Spanish). Click on Registo de Tramites y Servicios Federales to
access the e-registry. The Web site includes a search engine.
Reform of the Licensing System 43
Source: World Bank Group (2007) Box 20 Typical Information to Enter in an E-registry
For more details, please refer to the chapter on evaluation in IFC, GTZ, and DFID (2008),
which examines strategies and tactics for responding to the challenges of assessing impact,
and particularly in answering the following questions:
■ What has been achieved and what benefits have come from the changes made by
an intervention?
■ What, if any, results can be attributed to any given intervention?
■ To what extent would changes and results have occurred without the
intervention?
Chapter 5: Broadening the Scope
of Reform Beyond Licensing
Reforms that produce lasting improvements for business operations generally require sys-
temic changes. Indeed, one-time reforms focused only on the licensing regime are unlikely
to have long-lasting impact on the private sector’s confidence in investing in a country.
Successful reforms are not just about cutting the immediate red tape and addressing
the symptoms, but also about addressing the causes or the institutional factors that led to
these obstacles in the first place. Sustainable good regulatory performance often requires
systemic changes in the way regulation is prepared, scrutinized and enforced. A series of
steps can be taken that will help ensure that the results from business licensing reforms will
endure in the long run, including:
The responsibility for elaboration and implementation of the regulatory reform strategy
should rest with the reform team in order to assure an integrated approach to the various
reform components. To better inform considerations about continued and more broad-based
45
46 How To Reform Business Licenses
systemic reform of the way regulatory interventions are prepared and implemented, a review
of regulatory management capacities could be conducted.
The output of this exercise, which is typically carried out with the support of a local
consultant, will be an analytical report with recommendations on how to improve regula-
tory capacities, institutions and processes. This is most likely a stand-alone report, which
directly feeds into the implementation of the proposed regulatory reform strategy.
The successful licensing reform will have streamlined the current stock of business
licenses. To ensure long-term sustainability of reform gains, a mechanism is needed to
address the flow of new regulations: through review and vetting of all new draft regulation,
to be assessed against the same quality criteria applied during the reform. The approach is
inspired from and may take the form of an adapted lighter version of the Regulatory Impact
Analysis (RIA) system. This is a function that the RRU could lead.
Broadening the Scope of Reform Beyond Licensing 47
The mandate of the RRU will require strong political endorsement. A detailed action
plan will need to be elaborated, including terms of reference for the unit and for a chairper-
son. The plan must also address identification of suitable members, its mandate, and legal
underpinning.
Certain resources would need to be given to the RRU in order to support its role as
advocate for regulatory reform. As the unit responsible for these efforts, communications
and education campaigns are important to inform the public about the benefits of reform. The
RRU has to be staffed with skilled people, as one of its main functions should be to build capac-
ities for regulatory reform inside the administration. The RRU could normally provide training to
regulators so they can get familiarized with the use of Regulatory Impact Analysis.
RIA also helps governments to assess the impacts of regulation and is used to measure
the likely benefits, costs, and effects of new or existing regulations. RIA is an essential policy
tool for regulatory quality because its overall aim is to help governments make their policies
more efficient. The use of RIA can contribute to the policymaking process by promoting
efficient regulatory policy.
As an institutionalized model for analysis40 RIA should follow seven basic steps, described
in Box 22. In its practical application, RIA commences with an analysis and articulation of the
policy problem that creates the context for possible regulation. It highlights the different
objectives and options available to tackle it, using regulatory measures, but also alternatives
to regulation. The impact analysis should consider an evaluation of the costs and benefits
of the selected options, in a quantitative way. A RIA should indicate the way forward and
explain how the selected option will be implemented and reviewed over time.
39
See www.oecd.org/dataoecd/21/52/35258511.pdf.
40
See www.oecd.org/dataoecd/44/15/40984990.pdf.
41
See World Bank Group (forthcoming), Regulatory Reform in Developing Countries: the Role of Regulatory Impact
Analysis (RIA).
Broadening the Scope of Reform Beyond Licensing 49
1. Problem. This is a key step to identify and document the problem (sources, further
action required, risks related, magnitude of the change and size of the problem, who
might be affected, and so on).
2. Objective(s). This step should help define why government action is required and what
needs to change.
3. Options. This step should indicate the possible options (feasible and non-feasible) with
explanations and descriptions for each one of them.
4. Impact analysis. This step should include the use of a method that is linked to the
magnitude of the problem, assessing impacts of all relevant factors.
5. Consultation. This step includes a list of who was consulted, how and what the views
of stakeholders are.
6. Conclusion and recommended way forward. This step indicates which option was
chosen and why others were not. The preferred option has to achieve the objective.
7. Implementation and review. This step has to indicate how the preferred option will
be implemented, monitored, and enforced.
Project teams can find out more on the RIA process by taking an introductory course on
the United Kingdom’s Department for Business Enterprise and Regulatory Reforms (BERR)
website42. The introduction explains the steps in completing an impact assessment, as well
as who should be involved throughout the process.
42
See www.iatraining.berr.gov.uk.
50 How To Reform Business Licenses
framework and focal point for all business regulations, with guiding principles for
the long term.
BRBs can cover key systemic aspects of a regulatory management system. Their main
object is to provide a framework for the activities of authorities involved in the regulation
of businesses.
BRBs generally:
BRBs are just one part of the legal body that regulates business activities. At the inter-
national level there is no general trend on having such a bill, but several countries with
legal systems with no clear focus on business regulations have opted for a BRB. In general,
countries enact a wide range of scattered laws and regulations dealing with business reg-
ulations43. The benefit of having one BRB is that such a legal document can be seen as
a comprehensive framework for business regulations that introduces principles of good
regulation by clarifying concepts, adapting general criteria for business regulations, assign-
ing clear regulatory quality functions to specific institutions, and establishing by law proce-
dures for better regulation.
To be successful, a BRB should avoid setting a rigid framework for business regulations.
Since the scope of regulatory reform is incremental in countries trying to improve the creation,
implementation, and enforcement of regulations, a BRB should be functional and flexible to
adapt over time to the changes required. But a BRB should also set up clear sanctions for the
regulators that do not comply with the new procedures to create new regulation.
43
The Law Library of the Doing Business project (www.doingbusiness.org/LawLibrary) provides many examples
of business laws and regulations around the world. However, there are very few examples of Business Regula-
tions Laws/Bills” as such.
Annexes
Index of Annexes
Annex 1 Summary Table: Standard Stages and
Steps to Implement Business Licensing Reform 53
51
ANNEX 1
6. Media and To help champion sell reform Media campaigns, Consider: Which media,
communications to all stakeholders press releases, etc. what message, when?
strategy To ensure champion’s
commitment and promote
reform implementation
(continued)
53
54 Annex 1
10. Standard To assess cost of compliance SCM spreadsheet; Info Collection Template
Cost Model imposed on businesses by filled on the basis of should be capturing the info
benchmarking licensing regime through the inventory required for SCM analysis
SCM methodology
11. Setting To establish and publicize Publicized reform 30% burden reduction has
quantitative reform targets in terms of target, as part of been a realistic target for
reform targets reduction (savings) in costs mandate first-generation reforms
and time for the economy
13. Validation To strengthen momentum Post-inventory Will also introduce and set
workshop of for reform review to publicize the framework for regulatory
inventory findings To strengthen the reform and validate reform strategy
committee’s mandate findings with
all stakeholders
To “shame” special interests
(including private
sector)
16. Drafting a To elaborate a medium- Reg Ref Strategy Leverages success and
medium-term term, broader strategy and Action Plan momentum created by
Regulatory Reform moving beyond licensing licensing reform
Strategy (RRS)
18. Designing To agree with client on Measurable reform Doing Business indicators
a monitoring measurable reform targets targets agreed upon often high on the client’s
and evaluation and track them with client agenda
framework To monitor reform Inventory should also
committee progress and generate relatively firm
performance baseline data, ultimately
part of the regulatory reform
strategy;
M&E for project also needed
21. Special To conduct reviews through Sectoral or industry May be necessary to hire
attention to a sectoral or industry lens; reports sectoral experts applying
sectoral reviews reform proposals based on general and government-
industry logic endorsed criteria to sector
(continued)
56 Annex 1
23. Review of To conduct the review of Several working The most intense workload
licenses by the every identified license sessions of the for the reform committee.
reform committee To assess each license reform committee Dedicating 2- to 3-day
against established review retreats outside of capital city
criteria can be an efficient way to
complete the review
24. Preparing To produce one Decision One Decision Memo Decision Memos should
Decision Memos Memo per reviewed license per identified ideally include the
for government including (a) decision to license assessment (based on SCM)
approval keep, streamline or abolish, of savings in costs and time
and (b) justification of implied by recommendations
decision
28. Electronic To set the framework for E-registry legally Judiciary not enough to
registry of all valid positive legal security (i.e. and physically ensure enforcement;
licenses only licenses in the registry established (incl. Explore links with other
can be enforced) staff dedicated to e-government initiatives
To strengthen transparency, running it)
accessibility, and
enforcement
Annex 1 57
The Information Collection Template is a questionnaire used to gather detailed information about
the licenses under review. During the course of the licensing project, the template can be used
in preparing the inventory of licenses, as a basis for implementing the SCM, and as a basis for
assessing whether the license should be retained, eliminated or simplified, and provides important
data to be entered into the electronic registry. The template is used in the following steps of the
licensing reform project (see Summary Table in this annex):
The inventory of licenses is a master list of licenses imposed in a country. An accurate inventory
serves as a baseline for the licensing reforms, and during the course of the project the team will
refer to it regularly. The inventory of licenses comes up in the following steps during the licensing
reform project:
Legal acts are the mechanism by which reforms are implemented by government. It is therefore
important to plan at the outset what kind of legal instruments will be needed, and at which stages
of the project. Legal acts are referred to in the following steps of the licensing project:
A2.1 Background
This “basic information collection template for licenses and permits” is designed to capture
minimum information on each license and/or permit to allow for a broader inventory of all
licenses/permits.
The information gathered through this template can also form the basis for further and
subsequent diagnostic reviews and reforms of licenses and permits. Please see separate
data collection templates for further information about data required to undertake one or
more of the following four types of additional/supplementary diagnostic assessments:
1. the validity of a license/permit and scope for reform of the license/permit via a
“guillotine” approach;
2. use of Standard Cost Model assessment;
3. information to be provided to applicants or posted on an electronic registry; and
4. a review of fees, charges and taxes collected through a license or permit.
Please note that where there is sufficient political support early-on in a licensing/
permits reform program to undertake two or more diagnostic assessments, then two or
more templates can be amalgamated into one larger survey and data-collection exercise.
60
Annex 2 61
Question Response
1. The purpose and objective Purpose and objective of license (e.g., safeguard
of the license (e.g., describe public health by ensuring that all shops selling food to
in precise terms the problem the public comply with minimum food handling and
the license/permit seeks to storage requirements):
fix).
5. For this license/permit, (e.g., 5520 new licenses were issued in 2008–09 &
please provide the number 5290 in 2007–08)
of new licenses/permits
issued per year.
7. For this license/permit, the (e.g., 27,520 licenses were renewed in 2008–09)
number of licenses/permits
renewed each year.
(continued)
44
License/permit number should identify the sector of economy (e.g., all businesses, or all retail shops) and where
relevant the sub-sector and size of business (e.g., small retail shops selling agricultural chemicals and fertilizers).
62 Annex 2
Question Response
8. Describe total fees, charges What is the total revenue collected from these fees/
or taxes collected from the charges associated with this license/permit (latest
license and the year these available figure, if known – e.g. $1.39m collected in
monies were collected. 2007–08)
A3.1 Background
The Government of […] through the Ministry of […] is working with [name of contracting
organization] on improving the country’s business environment in order to promote enter-
prise growth, wealth and employment creation.
This project focuses on business licenses, defined broadly as: “any ex ante authoriza-
tions required for any business activity to commence and to operate”. This includes all
licenses, authorizations, certificates, permits, levies, fees and other taxes imposed on busi-
ness activities by any regulatory authority (including national, sectoral, provincial, and
district/municipal).
A3.2 Objective
The overall objective of this exercise is to create a comprehensive inventory of all business
licenses in […]. The inventory is to include information about the legal basis, procedures,
revenues, fees and costs for each individual license, and a rough assessment of the effi-
ciency and relevance of the individual license. This will constitute an important source of
information for the reform of the business licensing regime in […].
63
64 Annex 3
Using the broad definition of business licenses above, the Consultant will identify:
■ All general business licenses, which are applicable to all businesses nation-wide;
■ All sectoral business licenses, which are applicable to businesses operating in a
specific sector).
■ All provincial and/or district/municipal licenses which are applicable to businesses
operating in the following provinces: […]
For each identified business license, using the template provided, the Consultant will
collect the required information and collate it into an Excel worksheet, using one line per
identified license. The information will include [to be reflected in template]:
■ Fees and calculation method: what fees must be paid to obtain this license, and
how are they calculated?
■ Revenue generated: What is the total revenue generated by this license, and to
whom are the proceeds allocated?
■ Number of licenses issued: how many licenses have been issued in the past
years [specify]? Please provide data for at least one year.
■ Number of eligible businesses: How many businesses constitute the target
group of this license (all businesses that are required to obtain this license, but may
or may not have applied for it or obtained it)? Please provide best estimate in case
hard data is not available.
■ Sources of information: please list the various sources consulted to provide
information summarized in this form.
■ Person filling out this form (name).
As part of work under this component, the information collected and generated should
be aggregated and extrapolated to cover the costs and time spent on business licensing for
all business in […]. This sub-component will be led by a group of international consultants
specialized in the use of the Standard Cost Model. However the role of the Consultant under
this task is to ensure that the data collected is coherent and applicable to the cost- and time
calculations.
Work under this component will include participation in the selection of 20–30 high-
priority licenses, which are considered as the most burdensome and annoying for busi-
nesses in […].
Work under this component will also include the identification of licenses and licenses
practices which can be subject to rapid revisions (quick wins). Quick wins will include
redundant practices which can be eliminated easily, that is through executive measures,
and which are expected not to create the need for lengthy political debate. The latter two
tasks will take place in close cooperation with the Government of […] counterpart.
For each identified business license, using the template provided, the Consultant will
provide a primary assessment based on the following criteria:
■ Legality: Is there a sufficient legal basis for this license? If so, please name it.
■ Necessity: Does this license serve health, safety or environmental protection
purposes? If so, please name it.
■ Efficiency: Does this license have the least impact on business activity and uses a
minimum of public resources or is there a more efficient way to obtain the same
result? Please explain.
■ Conversion to notification: Could this ex ante license be converted into an ex
post notification? Please explain.
■ Silence is consent or denial: Is there a defined time limit for regulatory authority
decision? Could the “silence is consent (or denial)” rule be introduced (that is
if regulatory authority does not provide decision after […] days, the license is
reputed obtained (or denied) to speed up the process? Please explain.
■ Threshold applicable: Would it be possible to reduce the target group, by
introducing or changing an eligibility threshold (for example, instead of all firms
subject to this license, say only firms with 5+ employees are required to obtain it)?
Please explain.
■ Reduce reporting frequency: Should the reporting frequency be reduced to
lower the administrative burden imposed on businesses? Please explain.
■ Information can be obtained internally: Could all or part of the requested
information be obtained internally by the regulatory authority (does another
ministry or department already have it)? Please explain.
■ Amalgamation with other license: Could this license be bundled or
amalgamated with other licenses required from the same target group of
businesses? Please explain.
■ Streamlining: What other measures could be taken to improve competitiveness
and reduce administrative burden for businesses?
■ Source of information: Please list sources.
■ Person filling out this form (name).
Based on this assessment, the Consultant will make a recommendation as to whether
the license should be either: (a) kept, (b) abolished, or (c) streamlined, and provide a brief
justification.
Annex 3 67
A3.4 Methodology
This exercise relies on two main methodologies to collect information:
■ Desk review of published sources: The Consultant will review official sources for
legal texts, administrative decisions, municipal council decisions, etc. such as the
legal gazette and any other sources regulating business operation, as appropriate.
■ Interviews: The Consultant will elaborate questionnaires and conduct interviews
with the relevant stakeholders, such as:
A3.5 Deliverables
The Consultant will deliver the following (see timeframe below for delivery dates):
■ One quick wins note. The note should list 10-20 licenses considered as
technically/practically easy to simplify/eliminate, (for instance, through executive
order without requiring lengthy political debate). For each of the quick wins, the
note should specify (i) what the problem is (ii) what revisions need to made, and
(iii) the specific political/regulatory measure required to implement the measure.
(that is “Minister […] to publish the following notice in the legal gazette: […],” etc.).
■ One interim report, summarizing progress midway into the exercise (including
all templates and relevant attachments completed to date).
■ One draft report summarizing main findings (including the complete inventory of all
templates and relevant attachments), to be reviewed by [the contracting organization].
■ One final report (including the complete inventory of all templates and relevant
attachments), finalized after the draft has been reviewed by [the contracting
organization].
■ The Consultant will participate in workshops to validate the findings at the
end of this assignment.
■ The reports will include in annex:
68 Annex 3
A3.6 Timeframe
Two months [indicative] to produce a Final Report.
[…]
Assessment of Proposals
[…]
[…]
ANNEX 4
One aspect of this cooperation focuses on the reform of business licenses45. The overall
objective is to reduce regulatory costs and risks of doing business through streamlining and
eliminating unnecessary licenses. One of the key project activities is the elaboration of a compre-
hensive inventory of all business licenses in […], with the objective of preliminarily assessing the
relevance and business-friendliness of these licenses and associated practices.
[The contracting organization] proposes to apply the SCM to provide reliable data about
the costs and benefits of licenses identified through the comprehensive inventory. This will be
an important step towards: (a) prioritization of areas of reform, and (b) assisting the Government
of […] in improving the basis for deciding on the elimination or simplification of licenses.
45
Business licenses are defined broadly as: “any ex-ante authorizations required for any business activity to com-
mence”. This includes all licenses, authorizations, permits, and fees. Licenses as defined here may also include
licensing activities which de facto function as revenue generating mechanisms (that is as a tax). In other words,
where the commencement of a business activity is contingent on the payment of a particular fee, this fee or tax
will for the purposes of this inventory be considered a license.
69
70 Annex 4
Application of the SCM will serve the dual purpose of providing policymakers with a
quantitative measure of the impact of the current licensing regime, and of guiding priorities
for specific revisions and eliminations. In other words, better information about the regula-
tory costs imposed on businesses will improve the transparency and economic rationality
of the decision-making process of the Government of […] in implementing the licensing
review.
46
The Consultant will not be responsible for identifying and collecting data for business licenses in […]. This effort
is expected to be undertaken by local consultants under the guidance of the Consultant.
Annex 4 71
Total 30
ANNEX 5
A5.1 Background
Many inefficient and costly licenses, permits, and certifications of businesses hamper busi-
ness growth and competitiveness in […]. The Government of […] has decided to adopt a
comprehensive approach to reforming the licensing regime.
The objective of the reform is to substantially reduce the number of licensing require-
ments in […] and, by doing so, to make the licensing regimes more simple and transparent,
and focused on legitimate regulatory purposes.
Accordingly, the Government of […] has formed the Reform Committee on Business
Licensing Reforms comprising representatives of expert public authorities with cross-cut-
ting perspectives on economic and legal reforms, including [for example] the Ministry of
Commerce, the Ministry of Finance, Attorney-General’s Office, and Legal Reform Commis-
sion, as well as other line ministries involved. The Reform Committee is chaired by […],
engaged by the Ministry of Commerce.
■ Under the supervision of the Ministry of Commerce, the Chair is responsible for
managing and directing the activities of the Reform Committee so as to ensure
that the Reform Committee completes its tasks on schedule, as specified in [quote
official high-level decision endorsing the mandate of the Committee].
■ Under the leadership of the Chair, the Reform Committee is required to implement
a comprehensive reform of the business licensing regime in […]. This involves
the review of an estimated […] licenses, establish a permanent electronic registry
72
Annex 5 73
for licenses at the Ministry of Commerce and also to put in place a mechanism for
quality review of licenses in the future.
■ Designs and implements a strategic plan for the implementation of the business
licensing reform in […];
■ Identifies individual licenses, which are required by businesses in […] as will be
or have been submitted by line Ministries and regulatory agencies and carries
out such independent study as may be required to develop a complete list of all
business licenses in […];
■ Subjects these licenses to a comprehensive reform within the timeframe
established under the strategic plan;
■ Sends a reminder and coordinate with the Ministries, regulatory agencies, and
other institutions that issue licenses to obtain key information about the licenses
they administer, as has been requested in Decree […];
■ Reviews the selected high-priority licenses identified by the Committee in
consultation with the private sector and carries out independent assessment in
order to simplify them;
■ Reviews and carries out independent assessment of all other licenses identified
through the comprehensive inventory. All licenses will be subjected to the
following tests: Is it legal? Is it necessary from an environmental, health and safety
perspective? Is it business-friendly? Is it efficiently administered?
■ Assesses the revenue implications of the proposed reforms bearing in mind the
budgetary implications;
■ Assesses implications in terms of compliance costs for businesses as a
consequence of the proposed reforms. Assessments could cover a selected
number of particularly burdensome and complicated licenses;
■ Liaises and consults with the private sector, line ministries and regulatory agencies
to implement the comprehensive licensing reform;
■ Holds consultative seminars, workshops, or meetings to ensure transparency in the
process of the reform;
■ Makes specific recommendations on the reforms as to which licenses are to be
retained, amended, or abolished, taking into account their necessity, legality,
efficiency, budgetary implications, and business friendliness;
74 Annex 5
We launched the “guillotine” process on schedule, worked with […] public bodies to
help them comply with the Decree, and have now completed our review of […] licenses
that were selected as potentially costly to businesses. We have prepared a Better Regulation
Bill that will fully implement our recommendations.
In our review, we fully considered the information and explanations provided by the
responsible bodies, and contacted many of them to invite them again to make any addi-
tional submissions they wished. A full list of consulted parties is presented in Annex 2. We
carried out a thorough, transparent, and independent review, and consulted with stake-
holders to determine their views on each license. The review process provided a full and fair
opportunity to all interested parties to support their positions to the Reform Committee.
A draft press release is contained in Annex 1 should the Minister accept our
recommendations.
75
76 Annex 6
The licenses in each of the four categories are listed in Annex 3. The explanations for
our recommendation for each license are contained in Annex 4. The necessary legal amend-
ments to implement our recommendations are contained in Annex 5. These legal revisions
are designed to be adopted as a single comprehensive package that accomplishes the
recommended reforms quickly.
1. Licenses shall be used as regulatory tools for health, safety, and environmental
protection, rather than for revenue-raising purposes.
2. Reforms shall not reduce health, safety, or environmental protection, but shall aim
to achieve these goals more efficiently and effectively.
3. Licenses shall not be used to determine commercial quality that is better decided
in the market.
4. Licenses shall be simplified to the maximum extent possible to improve access for
smaller businesses and entrepreneurs. For example, most license applications shall
be reduced to one page.
Annex 6 77
5. Application fees than shall be no higher than […], while license fees shall be the
minimum necessary to cover the cost of administering the license.
6. Duplication of information and licenses shall be entirely eliminated. Public
agencies that require information shall share information among themselves,
rather than imposing burdens on private businesses.
To sustain reform, […] must move toward international good practices of regulation.
We need quality controls such as a permanent body for good regulation, systematic trans-
parency and public consultation procedures, and capacities for regulatory impact analysis.
These practices are well-accepted and recommended by the OECD and other international
bodies to promote economic growth and good governance.
47
This section explains the reasons for the institutional reforms included in the deregulation bill. It includes other
recommendations that were raised in the stakeholder consultation, such as the need to examine a policy on
transport policy and a policy on tourism, and to promote industry self-regulation.
References
Argy, Steven and Johnson, Matthew. 2003. “Mechanisms for Improving the Quality of
Regulations: Australia in an International Context.” Staff Working Paper, Productivity
Commission, Canberra.
Australian National Audit Office. 2007. “Administering Regulation: Better Practice Guide.”
Canberra.
———.1996b. “Business licenses and Regulatory Reforms,” 96(9). Bureau of Industry Economics,
Australian Government Publishing Services, Canberra.
Coolidge, Jacqueline. 2006. “Reforming Inspections.” Viewpoint note no. 308, World Bank
Group, Washington, D.C.
———. 2010. “Tax Compliance Cost Surveys: Using Data to Design Targeted Reforms.” Invest-
ment Climate IN PRACTICE note no. 8, Investment Climate Advisory Services, World Bank
Group, Washington D.C.
Corthay, Laurent. 2009. “Local Regulations, Taxes, and the Business Environment: Finding the
Right Balance.” Investment Climate IN PRACTICE note no. 5, Investment Climate Advisory
Services, World Bank Group, Washington, D.C.
International Finance Corporation (IFC). 2006a. “Business Licensing Reforms: A Toolkit for
Practitioners.” Small and Medium Enterprises Department, World Bank Group, Wash-
ington, D.C.
———. 2006b. “Good Practices for Business Inspections: Guidelines for Practitioners.” Small
and Medium Enterprises Department, World Bank Group, Washington, D.C.
———. 2007. “Strategic Communications for Business Environment Reforms.” Small and
Medium Enterprises Department, World Bank Group, Washington, D.C.
79
80 References
———. 2008a. “Standard Core and Supplemental Indicators for Business Enabling Environment
Projects.” IFC Advisory Services, World Bank Group, Washington, D.C. http://www.ifc.org/
ifcext/advisoryservices.nsf.
International Finance Corporation (IFC), German Technical Cooperation (GTZ), and U.K.
Department for International Development (DFID). 2008. “Monitoring and Evaluation
for Business Environment Reform: A Handbook for Practitioners.” World Bank Group,
Washington, D.C.
Moullier, Thomas. 2009. “Reforming Building Permits. Why Is It Important, and What Can IFC
Really Do?” IFC Advisory Services, Middle East and North Africa, Cairo.
———. 2002. “Review of Regulatory Reform: Regulatory Policies in OECD Countries: From
Intervention to Regulatory Governance.” Paris.
Thomas, Cordova-Novion, Batic. 2009. “Art or Science? Measuring the Impact of Business
Environment Reforms at the Subnational Level.” International Finance Corporation
SmartLessons, Washington, D.C.
World Bank Group. 2007. “Review of the Dutch Administrative Burden Reduction Programme.”
Washington, D.C.
———. 2009. “Lessons for Reformers: How To Launch, Implement, and Sustain Regulatory
Reform. An Analysis of Six Case Studies In Developing and High-Income Countries.”
Investment Climate Advisory Services, World Bank Group, Washington, D.C.
———. 2010. “Policy Framework for Business Licensing Reform and Simplification.” Investment
Climate Advisory Services, World Bank Group, Washington, D.C.
———. (forthcoming, 2010a). “Applying the Standard Cost Model in Developing and Transition
Countries: Issues for Practitioners.” Investment Climate Advisory Services, World Bank
Group, Washington, D.C.
References 81
———. (forthcoming, 2010c). “Licensing Case Studies: Tourism Sector.” Investment Climate
Advisory Services, World Bank Group, Washington, D.C.
———. (forthcoming, 2010d). “Licensing Case Studies: Mining Sector.” Investment Climate
Advisory Services, World Bank Group, Washington, D.C.
How to Reform
Business Licenses