Tag Archives: SMEs

Associations Play an Important Role in Improving Ukraine’s Business Climate

CIPE expert Nataliia Kobylchak (left) and Mykolaiv coalition member Iryna Yerofeyeva (right) at CIPE’s M-Test training in Mykolaiv, Ukraine.

By Nataliya Zhuhay and Caroline Elkin

As in any state ruled by law, local government officials in Ukraine are obligated to work within the framework of existing laws when developing regulations. But in practice, the regulations they create often act as obstacles for entrepreneurs to run their businesses. These flawed regulations can be poorly written, full of holes that corrupt officials can exploit, or do not correspond to existing laws. Until recently, such regulations did not take into account the costs they imposed, for example, on the café owner who wants to open a summertime terrace—or for that matter, any other basic entrepreneurial activity.

In December 2015, Ukraine’s Cabinet of Ministers adopted a resolution requiring all legislators to calculate the cost of implementing regulations for small businesses. This procedure is known as the M-Test. Although the resolution seems to represent a victory for Ukrainian business owners, many challenges remain. First, previously adopted regulations are not subject to the M-Test. Secondly, officials are not required to examine existing regulations for their corruption potential. Thirdly, the State Regulatory Service of Ukraine is unable to change problematic regulations because it can only make recommendations. Thus, only the courts are capable of compelling local governments to withdraw or change regulations. In practice, though, entrepreneurs are reluctant to pursue such matters in court, preferring instead to keep their heads down. As a result, the conditions for doing business on the local level discourage entrepreneurs rather than encourage them.

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Improving Afghanistan’s Economy from the Bottom Up

Lead farmer Abdul Rahman with grapes. Afghanistan. 2008.
Photo: © Nicholas Bertrand / TAIMANI FILMS / WORLD BANK via Flickr

CIPE and the local Afghan business community teamed up to develop an initiative that is helping to spur economic growth and create jobs in the provinces. Driven entirely by the provincial business communities in Nangarhar, Kandahar, Balk, and Herat, CIPE’s Provincial Business Agenda (PBA) program has produced a wide range of results that improve the local business climate, which has suffered setbacks in recent years. In areas far from Kabul, the economy has been particularly hard-hit by a drastic reduction in international development spending since 2014, resulting in a huge increase in unemployment in the provinces. This has caused many Afghans who were previously employed by the military and international donors to move to Kabul to look for work—or to leave their country out of desperation to earn a living.

CIPE started working at the provincial level in 2008, but has stepped up its efforts since 2014 as its role has become increasingly vital. CIPE works with home-grown, provincial-level small businesses to identify the day-to-day problems Afghans face when trying to start or grow their businesses, which leads to the creation of more jobs. CIPE takes the bottom-up approach in Afghanistan. We do not create business associations, because in CIPE’s experience, the local business community views donor-created business associations as inauthentic. We work with associations and chambers that formed because the business community came together out of the innate understanding that there is safety in numbers and power in collective action. Given the context of decades of war, continuing violence and deep-rooted ills, removing the obstacles caused by poor governance is a reasonable starting point for a country as complex and as dangerous as Afghanistan. Creating an environment that is friendlier to small businesses is a good first step towards improving the overall economy.

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Democratic and Economic Development in the Digital Era

In the last decade, new information and communications technologies (ICTs) have become less expensive and more accessible for people around the world. According to the International Telecommunications Union, more than 3 billion people (nearly 47 percent of all the people on earth) now use the internet. Likewise, by the end of 2016, the total number of mobile broadband subscription was expected to reach 3.6 billion. This growing global usage of ICT has made it easier for citizens and organizations to access information and share data, conduct business online, and virtually network with others. Rapid technological advances, in turn, are poised to have a profound impact on democratic and economic development around the world.

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Democracy that Delivers Podcast #42: Kalsoom Lakhani on her Journey from Storytelling to Empowering the Startup Community in Pakistan

Podcast Guest Kalsoom Lakhani

Podcast guest Kalsoom Lakhani

On this week’s Democracy that Delivers podcast, Invest2Innovate (I2I) CEO and Founder Kalsoom Lakhani talks about the trends, opportunities, and challenges that entrepreneurs face in Pakistan and the report that I2I just launched that looks at the environment for start-ups and investors in the country. Lakhani traces her work today back to her childhood in Bangladesh and Pakistan, and to her early interest in conflict resolution that stemmed from hearing about her family’s experiences during the Bangladesh War of 1971. The stories she heard as a child still resonate today as she seeks to increase understanding around the world about what everyday life is really like in countries such as Pakistan that are often best known in the West for violence and instability. Lakhani talks about how her interest in social justice led her to venture philanthropy and to the work she does today helping shape a supportive environment for entrepreneurs to start and grow businesses in Pakistan.

Follow Kalsoom on Twitter: @kalsoom82.

Download a free copy of the Invest2Innovate 2016 Pakistan Entrepreneurship Ecosystem Report.

Want to hear more? Listen to previous podcasts at CIPE.org/podcast.

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Crunch Time for Egypt’s Economic Reform

via Wikimedia Commons

via Wikimedia Commons

This blog originally appeared in Arabic on CIPE-Arabia.org

Indeed, Egypt is going through a very difficult period. The current economic situation is intrinsically linked to the accumulated weight of poorly addressed economic challenges over the past forty years.  Economic problems were either ignored, or in other instances, their root causes were not addressed in a profound and decisive manner.  On the other hand, undoubtedly, Egypt has all the capabilities to become one of the largest world economies.  This potential has been noted in reports of financial institutions such as the 2010 Citibank report.

The current difficulty stems from fact that there is no alternative to undertaking a comprehensive economic reform program. However, in the short run all Egyptians- the wealthy, the poor, and the middle class, will have to bear the brunt of these reforms. That said, with sound management of reform program, Egyptians will enjoy the fruits of reform in the medium to long run.

There can be no doubt that enacting economic reforms is crucial for Egypt’s progress. Thus, “No,” is my final unequivocal answer to the most critical question of whether Egypt has other alternatives to entering into the loan agreement with the International Monetary Fund (IMF).

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Donbas Entrepreneurs Reopening and Expanding Businesses in Ukraine

donbas-2

By Anastasiya Baklan

The war in Ukraine has been especially difficult for small businesses in the conflict-affected regions, despite a ceasefire agreed to in February 2015. According to the data of the State Statistics Service of Ukraine, communities in Luhansk, Donetsk, Kharkiv, Dnipropetrovsk and Zaporizhia suffer from a severe economic crisis, which is especially stressful for small and medium business owners.

Analysis of business owners’ attitudes in the Donbas region shows that the stressful situation provokes a fear of investing in illiquid assets such as real estate and land. So entrepreneurs in the region are revising their business models, leasing assets where possible and limiting immobile capital investment.

With the goal of assisting SMEs affected most by the economic downturn, as well as those businesses displaced by the conflict, CIPE recently supported at-risk entrepreneurs in six towns (Berdyansk, Pershotravensk, Slavyansk, Lozova, Svatovo and Kreminna) through a business training and mentoring program for 119 people. The USAID-funded project was based on strategies that promote specific business sectors in each of the target communities, which business owners are now beginning to operationalize.

Given the dire economic situation in Donbas, CIPE was pleasantly surprised to encounter several social impact business models. For example, Oleksandr Gadenko from the village of Osypenko near Berdiansk, has a business concept that will extend the public water supply to the villagers who suffer from a complete lack of water.

The business would bring fresh running water to residents of 800 housing units, which currently have no access to water at all. The novel business financing model, involving a mixture of state investment, private funding, and donor support, will allow villagers to access running water while earning a modest rate of return for the business owner.

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Privatization in Ukraine: Not So Fast

lugansk-factory

In Ukraine, thousands of companies are still owned and operated by the government — a legacy of Soviet central planning that bleeds money from the already strained state budget. With the country in economic crisis, there have been renewed calls for Ukraine to speed up its privatization process and sell these firms to private owners who can restructure them and run them more efficiently.

Ukraine’s former Minister of Economic Development and Trade, Aivara Abromavicius, recently made a well-reasoned argument for faster privatization on the Atlantic Council’s blog. Similarly, the IMF has also urged Ukraine to speed up the pace of privatization.

However, focusing on the pace rather than the quality of privatization will likely result in a botched privatization process — which will undermine the little bit of faith Ukrainians have left in the free market and state institutions, potentially leading to the growth of populist movements and destabilizing the current government.

Ukrainian state-owned enterprises (SOEs) remain a drag on the national budget. They serve as incubators for corruption and gray market deals and in some cases serve as piggy banks for Ukrainian politicians. While I agree with Abromavicius that “simplicity, clarity, and transparency,” must be maintained in order to successfully privatize Ukrainian state owned enterprises, his concept of creating a simplified privatization procedure (without advisers) through an online auction of over 1,000 smaller SOEs will likely lead to public anger over a process that would surely enrich insiders.

Without independent advisors overseeing the due diligence process and hiring independent auditors, bidders will not have transparent access to information about the companies listed. This would, in effect, be like buying from an unrated seller on eBay with only a vague description of what is for sale – something that would not inspire confidence in potential buyers.

A lack of independent advisors–and the transparency and investor assurances they would bring to an auction—can lead to lower realized prices for the Ukrainian government, attracting only those bidders with inside knowledge of the true status of the enterprises for sale.

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