Comment on the DCED Proposal of a Business Environment Indicator for the Post-2015 Framework

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business environment indicator for the post-2015 framework

Should an indicator that measures improvements in national business environments be included in the post-2015 framework? This is a question that the Donor Committee for Enterprise Development (DCED) has recently posed. They have proposed 4 options for such an indicator.

The world is currently waiting to see whether the Open Working Group (OWG) proposed set of global goals and targets will be reopened for negotiation. The indicators, on the other hand, should not be agreed through a process of intergovernmental negotiation. Indicators need specific technical expertise and are too complex to become political footballs. The UN Statistical Commission have indicated through their briefing note that they will have a role to play in convening this process, and will include relevant input from member states and other stakeholders.

In this blog I specifically comment on the DCED proposal drawing on CAFOD’s experience and research on what a pro-poor business environment looks like. A brief disclaimer… these are only some thoughts. At this stage my mind is not made up about whether including an indicator on the business environment would be helpful within the post-2015 framework. Much learning is still needed and I’d be very interested to hear what others think on the proposal and my reflections. My contribution is therefore: if such an indicator was to be included, what steps would need to be taken to ensure better poverty impact.

  • Articulate a clear theory of change which would provide the rationale for including a business environment indicator within the post-2015 framework: The proposal lays an important case for why considering the business environment is an important thing to do. Certainly, there does seem to be consensus in the literature that focusing on the business environment is valuable.[1] However, there are two key questions which must always be asked: Who benefits from business environment reform? And, is anyone harmed from the reforms?

Our research has found that reforms done in the name of improving the business environment can, at times, have little or no impact on people living in poverty and can, in some instances, actually cause harm to the poorest.[2] Research has also found that there is no evidence that reform packages aimed at establishing a ‘level playing field’ are pro-poor and appropriate to lift the workforce in the informal economy out of poverty.[3] The proposal appears quite dismissive of the role of regulation per se and seems to assume that deregulation is the most desirable option.  The recent IEG evaluation on the World Bank’s investment climate reforms provides valuable reading in this regard, highlighting that “regulation is not just a burden on businesses. It performs a necessary function in enabling markets to function and in protecting public health and safety. However, although regulatory reform often generates public goods, not all members of a population are guaranteed to benefit equally, and some may lose out.”

If a business environment indicator is to be included in the post-2015 framework there needs to be a very clearly articulated and evidence-based theory of change explaining how and why business environment reforms are important and how the reforms promoted in the indicator will have poverty impact and do no harm.

  • Any indicator within the post-2015 framework must have a very clear link to sustainable development – this should factor in social, environmental and economic aspects of development. Currently this area needs to be further developed within the proposal. For example, the 6 criteria (which the proposal recommends must be met for an indicator to be included in the post-2015 framework) only includes “positive economic outcomes”. Promoting positive (or safeguarding against negative) social and environmental outcomes of such reforms would also need to be included to ensure a better link to sustainable development.

Measuring “outcomes not institutional structures” (which is one of the criteria in the proposal) is a key factor in this regard; mechanical approaches which just measure regulations are deeply problematic, often excluding the needs, priorities and lived experiences of people living in poverty. Concentrating on outcomes helps to focus any proposed reform on issues that matter. One practical suggestion is to include a ‘target’ in the criteria, for example: “an indicator on the business environment should ensure that poor women and men are able to participate in economic activity and receive a fair return for their participation.”

  • To have poverty impact a business environment indicator must consider the needs of the poorest who are working within the private sector. The proposal makes the following valuable statement: “A further question for debate is whose business environment we would be aiming to improve”. Apart from the foreign / domestic investment options that the proposal raises in this regard, it is also worth thinking about who the private sector is and who we want to benefit from these reforms – this builds on the other comments above.

If we think only about medium-sized or bigger domestic businesses and multi-national companies, we are likely to miss the majority of the poorest who work in micro-enterprises, many of which are informal. The indicators we use to assess the business environment often exclude this group, and do not seek to understand or respond to the challenges that they are facing (for more on this, see our recent report looking at the case of Zambia here).

Given that 85% of people in sub-Saharan Africa (and similar figures in other regions of the developing world) work in this sector it is essential that their voices are heard and that the business environment responds to their needs. I am not by any means promoting the creation of thousands of informal micro-enterprises and jobs (a major risk is romanticising this sector and therefore ignoring the decent work deficits and vulnerability inherent within it). However, given the sheer size of this sector, the important role that it plays for poor women and men, and the limited other options available to people living in poverty: exclusion just isn’t an option. Instead of expecting this sector to disappear, or ignoring it and focusing on the most economically profitable sectors, it is essential the business environment reforms respond to the challenges that micro-enterprises face and facilitate better opportunities for women and men who are either work in or run these businesses.  Any indicator must therefore use a methodology which allows the voice of the poor who are working or in business to be heard and responded to.

These are three overarching reflections on the DCED proposal and I have not considered the individual indicators that they have suggested in any detail here.

What are your thoughts?

Please comment below, directly on the DCED website or if you write a separate blog please do send us the link so we can benefit from the learning.

[1] For a summary see CAFOD (2013) Thinking Small 2

[2] See for example the CSO statement on the Doing Business project.

[3] UNIDO & GTZ, 2008. P.x

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2 Responses to “Comment on the DCED Proposal of a Business Environment Indicator for the Post-2015 Framework”

  1. Jeroen Kwakkenbos Says:

    I think you highlight critical elements in terms of ensuring that those who are supposed to benefit from an enabling business environment are not perversely left behind. Looking at how wealthy and emerging market countries have used public policy to support their business communities it also becomes quite clear that there is no one size fits all approach. A full range of policy and regulatory instruments are necessary to ensure a business climate that is conducive and supportive of decent work, human rights and other development objectives. It also strikes me that any top down approach to policy reform runs contrary to principles of ownership and accountability.

    To a degree the indicators being proposed might be too technocratic and over-thinking the excercise. A simpler approach would be to ask questions along the lines of “does your government have a long term strategy for creating a business environment that supports its industrial and development objectives,” “were local enterprises, local authorities, trade unions, CSO groups and key beneficiaries consulted in the development of this strategy,” “are there clear measures for success in achieving that strategy and regular opportunities for reflection,” “does this strategy comply with other commitments” etc…

    • Sarah Montgomery Says:

      Thanks for these useful comments Jeroen. I agree that a full range of policy and regulatory instruments are necessary and particularly if this is to achieve a biz environ that supports development objectives as you say. I particularly like your suggested questions and think this could be a useful line of conversation to explore further with the DCED…

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