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Key Text Enabling Small Enterprise Development Through a Better Business Environment

Author: S White and J Chacaltana
Date: 2002
Size: 70 pages (525 KB)

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Summary

Over the past decade, international donor agencies have placed greater emphasis on supporting reforms to enable the development of small and medium-sized enterprises (SMEs). However, there is still little co-ordination of their work. This report from the Committee of Donor Agencies for Small Enterprise Development reviews recent experiences in an attempt to define best practice and to identify areas for potential co-operation and further research.

The report aims to further understanding of the similarities and differences in agencies’ reform efforts and to add to knowledge on their content, processes and outcomes. It also provides a basis for drawing up principles of good practice that could guide international collaboration. SMEs are more vulnerable to bias and constraints in the business environment than large enterprises. Thus reforms needed for their development should not be neglected among wider efforts to shape the environment for private-sector development. Analysing the experiences of donor agencies in the Balkans, the Caribbean, Peru, Tanzania and Vietnam offers diverse examples of their support for relevant reforms. But it also shows that there are many improvements still to be made.

Donors tend to intervene in similar categories: support for a stable economic environment, direct policy and legal reforms, and strengthening institutions. However, the agencies reviewed used different approaches, processes and mechanisms to help create business environments that support SME growth. By analysing these, a number of lessons can be learned:

National and local-level political support for reform efforts is vital, as is national ownership. Many donors try to respect this by using wider development strategies to channel their interventions.
Adapting the business environment requires a careful balance between reforming policies, laws and regulations and strengthening the institutions that enforce or implement them.
Collaboration and co-ordination between donors could play an important part in supporting reforms, but is currently inadequate.
A range of social, economic and political factors influence the business environment. Yet there is little evidence of donors working with different groups to raise awareness and build support.
National-level reform processes are more effective when complemented by reforms at local or district level.

Good practice in donor support stems from two core principles. Firstly, the need for donors to recognise the wider strategic role they play in a country’s development efforts, and secondly, that they consider how they plan and implement their support. Donors should:

Consider their role in a country’s political dynamics and, while promoting change, remain sensitive to the domains of local actors.
Raise awareness of the need for reforms and encourage representative institutions to advocate them. They should add value to domestic reform processes rather than trying to push their own agendas.
Recognise that reforms require an integrated strategy that cuts across various sectors. Thus they should encourage debate and social dialogue, and consult with domestic counterparts.
Accept that reform is a time-consuming process and plan to give consistent support over the long term.
Develop a framework to assess the impact of interventions, and conduct further research on the business environment and reform process.
Work on strategies to co-ordinate efforts and, where appropriate, to increase collaboration.

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Source: White, S. and Chacaltana, J., 2002, 'Enabling Small Enterprise Development Through a Better Business Environment: Donors Experiences in Supporting Reforms in Business Environment', Committee of Donor Agencies for Small Enterprise Development, Working Group on Enabling Environment.
Author: Juan Chacaltana , jchacaltana@cedepperu.org
Committee of Donor Agencies for Small Enterprise Development, http://www.sedonors.org