Private Sector Development

This article reviews new literature on the development of China's private sector. Since this sector's development is embedded in and characterised by a wider institutional environment, several general characteristics of China's capitalist transformation are discussed. Insights drawn from political science help in the understanding of the strategy of "wearing a red hat" and the emergence of China's private sector. The closely interwoven relationships between private companies and the Party-state that have taken place since the 1990s are also examined. The review indicates that focusing on state/capital relationships at different administrational levels contributes to a better understanding of China's private sector. The main conclusion is that although the development of the new private enterprises enabled the ruling elite to form and consolidate a hegemonic project that provided relative societal coherence, the project's continuity is threatened by a tendency for crises to occur.

The United Arab Emirates (UAE) has often been addressed as a success case in the GCC region due to its implemented policies that spurred growth and development with a market-friendly approach. This study aims to investigate the relationship between economic diversification and private sector development. For this, we employed an ARDL con-integration method to check the long run as well as short run relationship between variables. We found that the domestic credit to private sector has a positive relationship with diversification index. Also, domestic credit to private sector (DCPS) percentage of GDP has both short and long run relationship with economic diversification index. The results indicate that the domestic credit to private sector will promote the economic diversification in both the short and long runs. Moreover, the government infrastructure will also promote economic diversification in the long run but not in the short run. The trade openness has a negative impact on economic diversification in the long run, but it has a positive impact in the short run.

In multilateral development banks (MDBs), evaluation policies and practices are aimed at increasing accountability and learning.  Learning, in particular, is at the heart of innovation in these institutions, which is also able to lead to an improved organizational effectiveness and aid the fulfillment of an institution´s objectives.

Monitoring and evaluation (M&E) in MDBs is part of these institutions drive for enhanced learning, accountability, but also has a role in the innovation process, through lessons learned made available from projects, strategies and policies´ M&E processes.

Further, a characterization of the innovation process within the MDB´s context during the last 20 years would not be complete without an account of the developments taking place in the Evaluation Cooperation Group (ECG[1]). The ECG was created to enhance collaboration among different MDB´s evaluation functions and ease learning.  One of its initial objectives was to develop a wide range of good practice standards for public sector evaluation, private sector evaluation, evaluation of country´s strategies, amongst others.  Further details will be presented on ECG recent developments, thereby describing the process of preparing evaluation good practice standards, in particular those for the private and public sector evaluation.

Abstract

During the workshop several themes will be presented:

The evolving experience of the ECG and MDBs evaluation systems and whether this has enhanced innovation within these institutions;
Examples of good practice standards and how relevant they are for other development finance institutions;
ECG benchmarking exercises of good practice standards, its importance in assuring that innovation takes off at the level of evaluation functions;
Performance rating systems for public as well as private sector evaluation, driving institutional learning and the importance of holding MDBs accountable.
The enhanced focus on learning lessons and how this has driven change and innovation in MDBs.

Using objective measures of investor protections in 170 countries, I establish that the level of investor protection matters for cross-country differences in GDP growth: countries with stronger protections tend to grow faster than those with poor investor protections.

This paper seeks to examine the relationship between foreign aid and economic growth in Palestine. For this purpose, a replicated and modified endogenous growth model have been developed to capture the relationship. The multivariable regression model provides significant results using data from various sources such as the Palestinian Central Bureau of Statistics and The World Bank during the period of 1995-2012. Results indicate that there is a negative relationship between Aid and GDP per capita which implies that most of foreign aid is consumed and not invested. We find that the Palestinian Authority cannot survive without aid but simultaneously cannot depend on it to achieve sustainable economic growth.

La participación del sector privado en la agenda del desarrollo es un tema que ha venido cobrando mayor interés en los últimos años. Con el inicio de los ODS en 2016, dicho interés se mantiene vigente y renovado, así el present trabajo analiza la participación del sector privado en la cooperación internacional e identifica tendencias de colaboración dentro de la Agenda 2030. El texto se plantea particularmente desde el caso mexicano, en el que se detecta la necesidad de documentar y anlaizar los avances en la materia.

The Gulf States have the highest numbers of migrant workers in the world (Shah, 2006). The rapid economic growth these states have witnessed over the last five decades has made them an attraction to foreign labor from around the world. This study explores the problem of the low rate of citizens working in the private sector in the Gulf Cooperation Council (GCC) states, with a focus on the State of Kuwait. In order to gain a better understanding of the phenomenon under study, the problem is contextualized in the wider region by examining localization efforts in two other GCC countries: the United Arab Emirates (UAE) and Saudi Arabia. Considering the similar demographical, economic, and social conditions among GCC countries, the study was conducted in the State of Kuwait.

This paper aims at exploring the Dynamics of Youth Unemployment Outlook in South Sudan through a case study approach by assessing the nature and extent of youth unemployment problem, the major factors contributing to youth unemployment, the impact of the various policies, legal frameworks and programs that have been implemented for purposes of addressing youth unemployment, and recommendations of the alternatives policies and programs that can address youth unemployment in South Sudan.

As this paper asserts, there is a growing global concern about youth unemployment as the global economy is being threatened by the challenge of creating productive jobs in a bid to sustain economic growth and maintain social cohesion. Further, the implications of youth unemployment are both social economic and political and as such ignoring the roles played by the youth in the society amounts to threatening the very survival of a country like South Sudan. The problem of youth unemployment is also one of the few development and policy concerns that are common to both developing and developed countries, especially during this period when the study is undertaken. The study is also concerned with the concept of the youth bulge which has been seen as a common phenomenon in many developing countries.

In South Sudan it has been established that unemployment levels are higher among the youth. The prevalence of youth unemployment in South Sudan with its associate factors continues to entangle the South Sudanese society. Its negative impact is posing complex economic, political, environmental, social and moral policy issues for South Sudan. Addressing youth employment will mean better utilization of human capital, reduction in the growing social problems and improving the diminishing economic growth for South Sudan. Key conceptual framework issues for addressing unemployment in South Sudan are; employment creation, employability, entrepreneurship, and equal opportunity and acceleration of inclusive economic growth.

Women in developing countries face multiple challenges when setting up or developing local businesses. Poor access to information, inputs, skills, finance and markets affect women disproportionately due to gender-related barriers at different levels: the household, the community, the institutions and the economy at large. This situation limits the life choices and constrains the creativity of a vast population, while leaving an enormous amount of entrepreneurial and productive potential untapped. Smart, gender-sensitive and context-relevant solutions are needed to enhance and valorise women’s contribution towards pro-poor growth.

Determined to find such solutions, AIDOS and its partners – with the support of IFAD and other donors – have worked since 1995 with local communities and organisations in the Middle East, Africa and Asia to design, test and implement innovative models of business incubation that foster female entrepreneurship through a holistic and inclusive approach. As a result, village-based ‘virtual business incubators’ (VBIs) and small business centres have been established in Palestine, Jordan, Syria, Tanzania and Nepal, to provide local women with better access to tailored business development support, to help them develop new products and services, to facilitate their access to enterprise finance and to connect them more effectively to the relevant markets.

This publication charts the journey of AIDOS and its partners through the different stages of designing and establishing a VBI, as well as addressing the issue of incubator sustainability. The book – written by enterprise development and gender specialists who have developed this approach and have first-hand experience of its application in the field – offers a detailed explanation of the VBI methodologies and services, while introducing the readers to the key needs, potentials and dynamics of women-led enterprises through real-life examples.

Women in developing countries face multiple challenges when setting up or developing local businesses. Poor access to information, inputs, skills, finance and markets affect women disproportionately due to gender-related barriers at different levels: the household, the community, the institutions and the economy at large. This situation limits the life choices and constrains the creativity of a vast population, while leaving an enormous amount of entrepreneurial and productive potential untapped. Smart, gender-sensitive and context-relevant solutions are needed to enhance and valorise women’s contribution towards pro-poor growth. 

Determined to find such solutions, AIDOS and its partners – with the support of IFAD and other donors – have worked since 1995 with local communities and organisations in the Middle East, Africa and Asia to design, test and implement innovative models of business incubation that foster female entrepreneurship through a holistic and inclusive approach. As a result, village-based ‘virtual business incubators’ (VBIs) and small business centres have been established in Palestine, Jordan, Syria, Tanzania and Nepal, to provide local women with better access to tailored business development support, to help them develop new products and services, to facilitate their access to enterprise finance and to connect them more effectively to the relevant markets.

This publication charts the journey of AIDOS and its partners through the different stages of designing and establishing a VBI, as well as addressing the issue of incubator sustainability. The book – written by enterprise development and gender specialists who have developed this approach and have first-hand experience of its application in the field – offers a detailed explanation of the VBI methodologies and services, while introducing the readers to the key needs, potentials and dynamics of women-led enterprises through real-life examples.

The essay outlines the use of market-based tool known as contracting-out (outsourcing) to providing governmental public services and analyses from state and citizen (consumer) approaches advantages and disadvantages of outsourcing as a tool to delivery of public services. It is argued that outsourcing can increase the government efficiency in dealing with public services delivery and decrease costs of public service delivery, however to the point when the government‟s length-arm bodies delivering public services are considered as high-quality and equal service providers (does not create inequality within consumers) and the barrier of state services regulation through using outsourcing have not been hollowed-out enough (there are still policies not covered through outsourcing). Finally the paper proposes the governmental policy steps-framework which should be considered by government agencies before being ready to outsourcing public services delivery to non-state market provider.

A mapping of the opportunities and challenges of development and commercially-oriented public support to private sector engagement

Developing countries increasingly promote inwards investment and global value-chain integration as strategies to create more and better jobs. At the ‘other end’ of the value chain, partner countries increasingly aim to work with businesses to achieve both commercial and development objectives.  Linked to this, the 2030 Agenda for Sustainable Development calls for greater policy coherence towards sustainable development, so that the pursuit of economic interests should not be delinked from sustainability and development objectives.

This paper maps out the key instruments used by donor country governments to engage the private sector, both for development and for commercial purposes. Categorising different types of support, including both financial and non-financial means of working with firms, it looks at the potential opportunities and challenges for using these for development, and the potential synergies between developmental and commercial approaches. By looking at the overlaps in these approaches and some specific donor-country examples, the paper aims to outline where further policy dialogue and research might be useful.

Key messages
A mapping of public policy instruments to promote private sector trade and investment outside the EU for both development and commercial purposes identifies some of the key opportunities, challenges and synergies for using these instruments in a coherent way to promote sustainable development outcomes.
Development and commercially-oriented public instruments to engage the private sector abroad take similar forms that can be roughly categorised as 1) matchmaking services, 2) financial support and 3) technical support, with an increasing use of loans, equity investments and guarantees – rather than grants or soft loans only.
The similarities between the objectives and means of instruments point to the potential opportunity for synergies and greater coherence between public instruments with commercially-oriented and development-related objectives, and activities that are more inclusive and to the benefit of the poor.
Dedicated efforts are needed for 1) a more coherent application of sustainability criteria to the instruments, 2) better evaluation and learning opportunities of existing instruments, and 4) increasing transparency through better access to data and achieved impact and results.

The present study maps the organic vegetables value chain in the East West Economic Corridor (EWEC). It covers horizontal and vertical linkages, information and support services, price differentials, and packaging, branding and certification processes in an effort to identify strengths and challenges for an action plan in the value chain. In so doing, it supports the transformation of the EWEC from a transport and logistics corridor into a full-fledged economic corridor. After more than a decade in the making, the EWEC now offers time and cost-efficient transport linkages between major commercial centers and gateways to markets within and outside the corridor. By broadening the scope of the EWEC into value chains whose activities extend across districts, provinces, subregions and global markets, the economic corridor will enable households and enterprises of all sizes to better link their actions with value-adding downstream activities.

The private sector has become strategic in the development landscape. During the downturn of the past 6 years, bankruptcies in the private sector influenced the economy negatively, but during the ongoing recovery period most of new jobs were created in the private sector.  This period highlighted the private sector´s importance for spurring growth and development.

In developing countries in particular, the private sector has recognizably become an important driver of development. Multilateral development banks (MDBs), other IFIs and donors can no longer ignore the private sector as a key partner in development.

Developing and applying new and more appropriate evaluation methodologies and practices for evaluating private sector development interventions is an ongoing effort. This roundtable will focus on its recent developments and on how these evaluation methodologies and practices have influenced and driven institutional innovation, thus transforming the development landscape.



Abstract of the Roundtable

The Roundtable intends to deal with the following main questions, in both a multilateral and bilateral development:

Have outcomes of private sector evaluations fostered important innovations in development finance institutions and other development institutions?
Which are the new issues/methodologies raised by the recent SME and public-private partnerships (PPPs) evaluations?
Other questions that can be addressed are:

What are the differences regarding the pace of innovation in the private sector and what are bilaterals and multilaterals doing differently?
What are the most recent financial instruments for private sector support?

These two separate articles appeared in Op-Ed of Pakistan’s largest English newspaper, The Dawn, in May and June 2007. The articles look into the causes of Pakistan’s stunted corporate growth and offer insights into historical evolution of business and industry.

The use of Public-Private Partnerships in Private Sector Development policies entails a shift in the perspective of State involvement, leading to several challenges in both the public and the private sector. If handled correctly, these collaboration agreements are the best tool that governments have to actively intervene in the market and foster economic growth. An analysis of the reasons behind these conclusions is provided in this dissertation alongside valuable insights on empiric evidence that serve as examples of critical best practices.

The end of the commodity super cycle in 2014 hit Sub-Saharan economies hard, sending economic growth to a two-decade low by 2016 as prices of crude oil, commodities, and other African exports fell dramatically. In addition, global financial factors reduced the interest of international investors in the region. Despite the recent economic drag, Africa is a rapidly expanding market that represents significant economic opportunity for private enterprises and investors around the world. The region’s economic potential is about more than recovering commodity prices. Other forces are at work, including favorable demographic trends, economic reforms, infrastructure investment, buoyant services sectors, and strong agricultural production. Africa’s demographics are unique and brimming with potential. In an aging world, the region has a young and growing population. Rapid urbanization is expected to double the population of cities within 25 years, raising hopes for the productivity, innovation, and economic diversification that such trends have brought to other regions. The overall climate for business continues to improve, as African reforms tracked in the World Bank Group’s Doing Business annual survey continue to rise. The growth of local capital markets, though still nascent in most countries, continues apace across the region. All in all, private enterprises and investors that are prepared to take advantage of these trends and serve Africa’s burgeoning consumer classes stand poised to tap new markets and reap significant gains.

This paper reviews the Dutch development cooperation policies for the years 1949-2015 with particular attention for private sector development (PSD). The long history of Dutch development cooperation shows continuity in its approach towards development policy as a way of promoting Dutch businesses and export in developing countries.

The launch of the Millenium Development Goals and the Global Compact of the United Nations, set up a reconsideration of the role of the private sector in international cooperation� Around this, it comes out a literature that looks for the best ways for public-private collaboration� In that sense, it becomes relevant to identify the way in which private sector will contribute to the achievement of the Sustainable Development Goals, and particularly to exemplify this through the mexican experience with the recent creation of the Mexican Agency of International Cooperation for Development (AMEXCID) and the Sustainability Alliance�

Privatization of urban services focuses often on the involvement of foreign enterprises. This contribution deals with micro-privatization, the partial transfer of government responsibility for solid waste collection to micro-enterprises. It tries to shed light on whether the current private sector participation (PSP) of micro-enterprises in solid waste collection service is the best way to capture the expected
advantages of private sector involvement. The article examines the relations of the micro-enterprises with beneficiaries and the public sector by focusing on the contract procedure, the tariff-setting process, the cost recovery mechanism and institutionalizing of market principles for micro-enterprises. The research was carried out using secondary and primary data sources. Primary data were collected through the interviewing of public sector officials at different levels, focus group discussions with community groups and micro-enterprises, and observation. A survey was conducted among 160 micro-enterprises in the city of Addis Ababa, Ethiopia, using a standard questionnaire. What are some of the factors contributing to the results of PSP in Addis Ababa, the capital of Ethiopia?
Policies at higher levels of government definitely produced an overall climate conducive to micro-privatization and recognized the need to develop micro-enterprises, but it is not clear what role the micro-enterprises are to play in solid waste management. New opportunities were created by formalization and taken up by communities and micro-enterprises. Coverage and waste collected both
increased. The initiation and institutionalization of the formalization process was not without problems. The public sector overstressed the autonomy of micro-enterprises. The fate of the micro-enterprises is largely determined by the reforms undertaken at local government level. The rapid changes in policies at the local level made waste-collecting micro-enterprises lose confidence and more dependent on the public sector. The study shows the continued power of the state and its agents in shaping developments in this
domain.

Businesspeople and enterprises may be influential stakeholders with important resources, incentives and ideas in efforts to secure and consolidate peace. They are not necessarily less legitimate or more political actors than the civil society groups with whom donors and others routinely interact. If so, there is an argument that external authorities and agencies with a peacebuilding mandate should, with relevant host authorities, consider cooperative strategies with responsible business actors in pursuit of that mandate. The post-2015 development agenda illustrates greater donor and institutional focus in engaging the private sector. Yet this engagement has not typically been theorised, couched in notions of power and legitimacy and agency, or given a principled underpinning. What is at stake in closer, more cooperative development and conflict-management relationships with business in fragile settings? Does the ambivalence some peacebuilders might have towards engaging with business indicate problems of 'appropriateness'? Is it really so obvious that the for-profit motive should affect the legitimacy of business as a peace stakeholder? Can one justify closer relations or would peacebuilders simply risk undue influence, 'picking winners', or other undesirable outcomes?

In recent times, there has been a surge in small scale mining activities in Ghana which has made significant contributions to the national gold output, foreign exchange earnings, and employment among others. This paper investigated the impact of small scale gold mining on the living conditions of the people of the West Gonja District in the Northern Region of Ghana. The research involved: (a) the determination of gender and generation roles in small scale mining activities; (b) the determination of the effect of mining activities on employment, education, health, agriculture and cost of living of the people in the district and (c) The identification of the areas of interventions that will eradicate the negative effects of small scale gold mining in the district. Data of sampled households in four communities in Damongo was gathered and analyzed. The research methods included; semi structured interviews, validated self-administered questionnaires and observations. Sampling of communities and households was done using a combination of stratified and simple random sampling procedures. The study revealed varied effects with respect to small scale miners and the general community. Small scale mining has contributed positively in improving the lives of the people in the form of employment, revenue generation and meeting health, educational and basic family needs. It also confirmed the associated social, and environmental negative effects of small scale mining. The paper concludes that in the absence of a viable alternative source of economic livelihood, the West Gonja District Assembly should organize small scale miners into groups, assist them to acquire equipment needed for their operations and regularly monitor and control their activities.

The aim of the study was to ascertain the effect of liberalising the Nigerian financial system on credit components in the private sector of the economy, therein investigating the possibility of credit crunch. Employing data from 1970 to 2009, sourced from the Central Bank of Nigeria Statistical Bulletins, on an Autoregressive Distributed Lag (ARDL) Model to test for the long and short run impacts of financial liberalization and the presence of credit crunch in the private sector,
the results revealed that liberalising the Nigerian financial system had boomerang effects on the credits allocated to the sub-sector in the long run (except for mining and quarrying), and in the short run, financial liberalization was in all insignificant and negative. On investigating the presence of credit crunch in the long and short run, the results lead to the conclusion that Deposit Money Banks (DMBs) in Nigeria had a strong discriminating credit behaviour towards the real
sectors (Agriculture, Manufacturing and Mining and Quarrying) and the SMEs, as credit crunch was present in these sectors in both the short and long run as indicated by the inverse relationship between increasing deposit liabilities that make up savings and the credit that flows to these sub-sectors. However, their preference was observed in the significant positive flow of savings in form of credits to services, real estate, commerce and others (private individuals, professional, and government). Suggesting that credit crunch does not exist in this sectors as reflected when aggregate credit is reported.

The European Union (EU) has committed to ambitious energy-related objectives that shall contribute to inclusive, sustainable development. It therefore has put a number of financial instruments in place that support energy access in sub-Saharan Africa. Beyond traditional grants (still the bulk of EU funding), the EU increasingly uses its Official Development Assistance (ODA) to leverage loans and private investments from Development Finance institutions (DFIs) and the private sector, as also envisioned in the recently agreed European External Investment Plan (EIP). Through blended finance and smart technical assistance, there is a huge potential to develop and finance more energy projects that are currently (perceived) too risky and do not attract purely private investment. The EIP, through its 3-pillar approach and the setting of a dedicated 'sustainable energy' investment window, offers the opportunity to boost public and private investments in a more coherent, coordinated, and differentiated manner, and to foster impact investments, including towards the poor and enhancing their access to energy. Blending is however not a silver bullet, as it only works in certain areas and conditions, and cannot compensate for a lack of bankable and economically viable projects, particularly in less developed areas, where access rates are usually the lowest and the private sector is least interested and attracted. There will therefore be a continued need for i) grant funding for not fully economically viable projects, including when reaching some of the remote and poorest areas, ii) the right mix of public and private support instruments depending on context and need, and iii) more patience to see results. Besides, while many of the policy documents and instruments, most notably the EC's Africa Investment Facility and ElectriFI, make specific reference to enhancing access to energy, there is little information on results and impact, in particular for remote areas and poor segments of the population. The lack of transparency and data makes it often difficult to identify best practice and lessons learnt.The EIP also offers an opportunity for the EC to reconsider its monitoring and reporting results framework, and adapting expectations on impact, over a longer time horizon. ECDPM Discussion Paper 218 http://ecdpm.org/publications/eu-financial-instruments-access-energy-sub-saharan-africa/

Local communities in fragile and conflict-affected areas are exposed to many challenges, including armed v violence, displacement, insecurity and livelihood
and ecosystem destruction. An increasing number of businesses operate in fragile and conflict-affected areas, where the risks of human rights abuses are particularly great. Multinational corporations (MNCs) have been involved in human rights violations in these areas, often creating further conflict. However, there are still many gaps in understanding the relationship between
private sector actors and conflict.

As part of the Multinational Corporations in Conflict-Affected Areas (MCAA) programme, between 2013 and 2016 SOMO, together with its local partners, undertook research on extractives and agro-industries in five countries, Colombia, Democratic Republic of the Congo, Liberia, Sierra Leone and South Sudan. These case studies provide many illustrations of business-related
human rights abuses in a context of conflict and fragility, and provide valuable lessons on how companies operate in conflict-affected areas.

Based on these lessons, a number of recommendations are provided. Among others, it is recommended to MNCs to develop or improve company policies
and strategies on how to deal with conflict settings, in line with international standards and guidelines, to prevent them from contributing to new or
existing conflict.

This paper reviews the Dutch
development cooperation policies for the years
2010-2015 with a particular attention to the
private sector development (PSD). Historical
perspective is also added to this review. Dutch
government has been strongly supporting
policies and initiatives stimulating PSD in the
Netherlands and in developing countries. The
long history of the Dutch development
cooperation can serve as a valuable lesson for
other countries.

This piece provides a detailed overview and analysis of the socio-economic and political status of Afghanistan in 2016—many of the observations and analyses still hold (sadly!), five years on.

Some conclusions:
'The convergence of economic malpractice, the legacy of decades of conflict, and a mentality of dependence on international aid has led to rentier capitalism and a largely informal and illicit economy.'

'In the 13 years of international intervention, the Afghan government and the international community allocated most of their resources to physical security, but they have in the process neglected a vital component of the psychological security of the Afghan populace: sustainable and full-time employment.'

'The Afghan economy is the weakest in Asia for nearly every indicator used by international institutions to measure economic growth and development.'

First published in 1926, the Europa World Year Book is renowned as one of the world's leading reference works, covering political and economic information in more than 250 countries and territories, from Afghanistan to Zimbabwe. The Europa Regional Surveys of the World offer in-depth, expert analysis at regional, sub-regional and country level.

From the late 20th into the 21st centuries, the private market increasingly gained control from public authorities over strategic decisions affecting the quality of, and accessibility to, new urban development. This paper argues for architects to act more explicitly to influence greater open-ness and use-value, in contrast to more objectified and controlled exchange-value approaches to the public domain in private-led development.
A qualitative analysis of two London-based residential case studies combines interviews with architects to investigate perceptions of, and approaches to, private-led development decision-making processes. It examines individual experiences of architecture practice with explicit intentions to influence better quality shared city space, examining professional norms vis-à-vis commercial clients and wider society. The paper concludes that greater awareness of architects’ knowledge, skills, and a range of tactics to influence future shared environments can contribute to improved professional practice frameworks for more effective engagement in an increasingly globalised and privatised urban society.

After experiencing exceptional economic growth in the 2000s, Kazakhstan’s economy has slowed sharply since the global financial crisis, putting development achievements at risk. The economic slowdown has been caused by sharply lower commodity prices, and structural degradation of the economy. Kazakhstan’s productivity growth has steadily fallen over the past two decades. This paper first explores the main reasons behind Kazakhstan’s productivity slowdown from the macro point of view. The empirical exercise provides some insights into constraints that prevent the revival of the productivity. Finally, the paper offers some policy recommendations to not only boost productivity, but also maintain its growth sustainably.

This paper is the first comprehensive study of Tanzanian Diversified Business Groups (DBGs) –
conglomerates that encompass a variety of inter-linked, market-based economic activities,
which are organised to complement the overall operation of an entire business. DBGs can
serve as an important vehicle for industrialisation in developing countries, with their enhanced
diversification capacity having often overshadowed other private-sector activities. The ability
of these groups to instrumentalise rents towards productive and unproductive activities
ultimately determines their contribution towards economic growth.
Based on a combination of primary fieldwork and secondary research using quantitative and
qualitative research methods, we analyse the history and contemporary structure of leading
DBGs, with a view to better understanding the dynamics of state–business relations in
Tanzania. Combining three strands of literature – including theories of DBG diversification,
political settlements and regulation theory – this paper offers a novel analysis of DBGs in
developing countries by focusing on ‘Regimes of Capitalist Accumulation’(RCAs).

Just as no company would launch a new product or make a major investment without considering how to assess its effectiveness, no company should consider working with
smallholder farmers without considering how to measure and monitor the financial and social performance of this activity. Most companies working with smallholder farmers do
gather some information, but this information often lacks a clear focus. While these stories can help personalize the impact of a strategy, they are not sufficient to improve a company’s
performance or communicate to discerning external stakeholders. To demonstrate true poverty impact and returns on resources committed, companies need to measure their
activities in a systematic way. Facing this gap, a number of companies have experimented with their own approaches to assessing poverty impact, and organizations have proposed a variety of different measurement and monitoring frameworks specifically designed with companies in mind. This paper gives an overview of the business value that can be created
from measuring poverty impact in an agricultural value chain initiative and point to some tools, indicators and lessons learned for how companies can go about maximizing the business and social impact of their work with smallholder farmers.

Tax rates and tax administration are both considered to be severe obstacles to doing business in Laos by nearly one-third of the firms interviewed as part of the Investment Climate Survey (ICS) conducted by the Government of Lao PDR, the World Bank and the Asian Development Bank (ADB). Whether or not taxes are severe remains unclear, however, since information is lacking on the effective tax rates paid by firms. The ICS benchmark comparisons of taxes in Laos against regional standards were based on statutory tax rates rather than effective tax rates, and the difference between these two is recognized as being large. At the same time, the Government faces chronic budget difficulties that have failed to be expunged despite reduced government expenditures in relation to the country’s overall economic activity. The present tax study examines initiatives designed to support the private sector and SMEs in particular and strengthen public finance practices as a way of achieving a balanced budget and ensuring macroeconomic stability and sustained economic growth.

The current Tax Law came into force in October 2005 and covers direct taxes business in the form of profit taxes and minimum taxes, and indirect taxes in the form of turnover and excise taxes. The total direct and indirect taxes based on statutory rates in Laos are nearly 25 percent of gross profit for a medium-size company, which are below the rates for comparator countries in neighboring countries. Although these data on statutory taxes suggest that Laos has a low tax burden on businesses, recent studies report that tax rates are nonetheless perceived as a ‘major’ or ‘severe’ obstacle by businesses.

In practice, a considerably smaller amount of taxes than that implied by the statutory rates are collected by the Government. There are four channels through which substantial revenue losses occur in Laos: (a) non-registration of firms, mainly microenterprises and some small businesses, as a means of avoiding obligations to the tax administration; (b) misfiling by businesses in the wrong tax regime to take advantage of the contract system offered to small businesses; (c) evasion or fraud by taxpayer under-reporting of profits or turnover and over-reporting of deductible expenses; and (d) inadequate implementation of the revenue administration procedures. There are also losses of 30 to 60 percent of revenue from trade-related sources. Disincentives for businesses are nevertheless high since customs and handling charges represent about 25 percent of the cost of shipping goods abroad, despite the trade-weighted average tariff being only 9 percent.

Inefficiencies in revenue collection from businesses cause substantial revenue losses for the Government. Estimates of the tax gap have been conservatively estimated at three-fourths of the amount of taxes that should have been collected by the tax authorities, meaning that only about 25 percent of taxes reached the Tax Department. One-half of those losses derive from turnover taxes and another quarter from excise taxes on imported goods. These calculations, however, excludes underreporting and tax evasion or fraud for profit taxes and customs duties, which anecdotal evidence suggests are large. With those trade taxes included in the calculation, the tax gap would be considerably larger since revenue leakage in customs is estimated to be over 50 percent of the notation rate.

Since the statutory taxes on small to medium size businesses is between 25 and 35 percent of gross profits in Laos and the tax gap analysis indicates that only about one-fourth of the statutory rate reach the Tax Department, the implied tax that is effectively paid by businesses is between 6.25 and 8.75 percent. Validity of these estimates has been based on responses to a survey of 400 businesses in four provinces where businesses were asked to report their monthly revenue and monthly tax payments. The results are in line with expectations: the smaller firms pay fewer taxes than the larger firms relative to their respective sales volumes, and large firms pay somewhat less that medium-size firms but more than small-size enterprises. Large variations in the amount of taxes paid by firms occur in all firm size categories.

Substantial reforms would need to be implemented to remedy the chronic budget deficit of the Government of Lao P.D.R. The magnitude of those reforms can be approximated by reference to changes that would be required of the current tax rate that are effectively applied to businesses in the country. The actual General Government revenue and expenditures that have prevailed since the beginning of this decade show that the 4.5 percent deficit is associated with a calculated average effective tax rate of 8.6 percent. The actual tax rate that is effectively needed to balance the budget deficits averages 12.5 percent. Although apparently not significant relative to the total statutory tax rate of nearly 25 percent for a representative business in Laos, it nevertheless represents a 45 percent increase in the effective tax rates currently applied to those businesses that report paying taxes in the country.

A number of guiding principles are proposed for developing a tax reform strategy. The Government’s National Growth and Poverty Eradication Strategy (NGPES) provides the basis for a tax reform strategy through its programs related to economic growth and poverty eradication. The NGPES states that “providing an enabling environment for growth and development continues to be a top priority of the Government, as it is a prerequisite for eradicating poverty”. Essential components of such an enabling environment include both private sector development and macroeconomic stability that comprises, among others, improved tax collections. In this context, several basic tenants are proposed for a tax reform strategy. Making that strategy operation will require a set of high-profile implementable projects that have measurable benefits to the economy within a relatively short timeframe, as well as deeper reforms that have a longer time horizon. Illustrative projects are proposed based on stroke-of-pen reforms, regulatory and administrative changes, tax policy reforms, and trade related tax measures.