Private Sector Development e-discussion: How to Tackle the Problem of Rising Informality?

Join the new online discussion offered by the Rapid Response Web site on Private Sector Development.
How to Tackle the Problem of Rising Informality?

The number of informal firms – those operating beyond the reach of the law – is rising, accounting for more than 30% of developing world economic activity. Some policymakers believe this is not a serious problem, arguing that it is an indispensable lifeline for the most vulnerable. Others insist that informality carries high social and economic costs. They advocate radical reduction and simplification in regulations to encourage entrepreneurs to formalize – comply with legal requirements to start and run a business. One study of Egypt's informal sector shows that formalization can greatly improve a country's overall economic performance. Why do you think informality is growing almost everywhere, despite economic liberalization and stronger growth? What policy reforms do you think could help reverse this trend?

This online discussion is moderated by Vincent Palmade, lead economist at the Foreign Investment Advisory Service (FIAS) in the Private Sector Development Vice Presidency, a joint facility of the World Bank and International Finance Corporation; and Richard Stern, regional program coordinator for Central and Southern Africa at FIAS.

DOCON Directory of Consulting Companies

This unique Directory lists consulting companies active in international development cooperation, sorted by country of origin or registration. Here you can find consultants, consortium partners or employers. This information is compiled from public short-list of the World Bank, the ADB, the EuropeAid Coordination Office, consulting associations and other public sources. Please contribute by using the free add feature.

Why is the supply of BDS to small enterprises often so low?

The supply side in weak BDS markets must be considered carefully during the market assessment. Macro-economic constraints to BDS market development must be identified and removed before starting the market development. The "crowding out" of private suppliers by competition of subsidized monopoly providers must be revealed and stopped. The cost of creating permanent public benefits should be identified  and subsidized by public or donor funds. In markets, where the supply is low compared to the demand, facilitating and stimulation market development can be done by the activities suggested above. NGOs should ensure that their efforts do not distort, but facilitate, market development and should follow a pragmatic approach, depending on the level of development of BDS markets. The intervening organization can act as a facilitator, provider, or a combination of both at different stages in a program. In general, acting as a provider should be only an interim measure, and an exit strategy should be part of the upfront design.

Paper by Karsten Weitzenegger 2005

Why do small business hesitate to invest in people management and training?

Investing in people management and training is the only chance for a small business to overcome market disconnectedness in an Era of Knowledge-Based Economies. BDS can be the bridge for providing access to procedures and practises, standards and innovation. Entrepreneurs accustomed to free services are likely to resist paying for those services later. Resistance should not be equated with inability to pay. Reasons behind resistance can be various economic or socio-cultural facts. Advisors must be conscious about the owner-manager’s difficulties and resistance when passing on power and knowledge to the staff for reaching a team managed stage of organisation. Instead of pushing the owner-manager too much into this conclusion, BDOs can have better results, if the owner-manager can be assisted in developing own thoughts and strategies towards skills development. BDO can stimulate demand by marketing the benefits and possibilities of their services, considering the reasons behind resistance to training.

Paper by Karsten Weitzenegger 2005

Case study: Hamburg’s Initiative for Business Start-ups and Innovation

Hamburg’s Initiative for Business Start-ups was designed as public-private-partnership to strengthen the demand of BDS by a training voucher system. At the same time, the supply was structured and made transparent in a catalogue and a directory. The large number of existing providers was oriented more towards business starters. The local government did not „crowd out“ the providers, but took the lead in developing a network in a market-friendly approach. For the donor the system is an efficient and effective way to reach the beneficiaries without maintaining a costly institution. The attraction for the BDS providers is, that they are recognized by the government, get free marketing and earn fees with a new client group. After 10 years, the related network is an important information tool in the market. The donor intervention is relatively small, but designed to be permanent. The public benefits were kept clear and out of political party struggles. Pre-conditions for success were a high degree of demand and supply in a large city.
Paper by Karsten Weitzenegger 2005

Remittances to Africa overtake FDI

An United Nations report finds that remittances from Africans working abroad during 2000-2003 averaged about US$17 billion annually, while FDI flows averaged about US$15 billion during the same period. Official development assistance is still the main external resource flow for
Africa. The report highlights the need for reducing the cost of transmitting remittances to facilitate their transfer, and points out that the largest recipients of FDI have been countries with large mineral and petroleum reserves and growing natural resources industries.

Foreign remittances could overtake FDI and aid, says Asian Development Bank

Foreign remittances could overtake FDI and aid, says Asian Development BankThe Asian Development Bank — — predicted that in most developing countries in
Asia foreign remittances are growing at a rate that will make them exceed FDI flows and overseas development assistance combined in the near future. Foreign remittances are currently estimated to exceed US$200 billion annually, with four countries in Asia (India, the Philippines, China and
Pakistan) being the largest recipients. For these beneficiaries, foreign remittances have become a large and growing source of national income, a trend that is likely to continue.

The Role of Outsourcing in Reversing the Brain Drain into Brain Gain

According to a report published by the Public Policy Institute of California, economic opportunities in China and India are drawing well-educated and U.S. based Chinese and Indian entrepreneurs back home, reversing the brain drain that the two countries have experienced. Brain Drain, or the migration of skilled and educated individuals from one nation to another, is first and foremost a response to lack of opportunities at home. In recent years, countries like India and China, which have exported their brightest for decades, have started to reverse this trend. And outsourcing is said to have played a large role by creating jobs, raising incomes and generating disciplined, efficient workforces that have in turn provided a platform for economic growth.

Migration and Development: How to make migration work for poverty reduction

This report produced by the UK Parliament illustrates how governments and organisations can make migration work for the poor. It looks at the opportunities for improving the quality of migration, and ways in which policy can shape and respond to migration to make it work better for development and poverty reduction. The report argues that the impact of migration depends upon the nature of the migration, and on the links which migration establishes between home and host societies. It looks at issues including brain drain, trafficking and smuggling, migrants' rights, temporary mobility schemes, and the role of the Diaspora.

Success of Fair Trade in Europe

A recent survey, carried out in 25 European countries, shows that Fair Trade sales in
Europe have been growing at an average 20% per year since 2000. The annual net retail value of Fair Trade products sold in
Europe now exceeds EUR 660 million. This is more than double the figure five years ago. Fair Trade has thus become one of the fastest growing markets in the world. Fair Trade products can now be found in 55,000 supermarkets all over
Europe and the market share has become significant in some countries. Fair Trade is an efficient tool to overcome poverty and to reach the Millennium Development Goals. It gives producers a fair deal, not only by paying a fair and stable price for their products. Fair Traders also help their partners in the South to get better market access, to protect the environment and to comply with European standards. The research ''Fair Trade in Europe 2005 – Facts and Figures on Fair Trade in 25 European countries'', carried out by Jean Marie Krier, is published by the Fair Trade Advocacy Office in
More information:
See CTA publications on fair trade
DFID support to fair trade