CIPE’s Approach to Building Environments for Entrepreneurial Success

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Entrepreneurs drive change. They provide the ideas, initiative, and leadership to invigorate development and transform society. They are therefore pivotal partners of the Center for International Private Enterprise (CIPE) in the pursuit of its mission: to strengthen democracy around the globe through private enterprise and market-oriented reform.

Where entrepreneurial firms adapt and grow, they transform the structure and functioning of an economy. Indeed entrepreneurship — understood as formation and rapid growth of new firms — represents probably the most important means for developing a vibrant private sector. It is closely linked to the evolution of a market economy. A market economy establishes a level playing field for commerce and opens the way for new entrepreneurs.

As drivers of change, entrepreneurs often assume leadership roles in society. With their initiative, problem-solving ability, and new perspectives, entrepreneurs become a leading constituency for reform. As they raise independent voices, they enhance democratic debate and participatory policymaking.

Still, entrepreneurs need a little help. On their course to invent the future, they encounter institutional voids, political resistance, knowledge gaps, and collective action problems. To help them negotiate these challenges and accelerate momentum for entrepreneurial change, policy leaders and private sector stakeholders should heed the lessons of recent decades of transformation.

Lessons from 30 Years

CIPE’s history has coincided with massive historical trends of privatization, democratization, globalization, the rise of emerging markets, and institutional change. Without a doubt, entrepreneurship has made dramatic strides that were not conceivable in the preceding era of development. Progress has been highly uneven, though, and by now we have observed important patterns.

Entrepreneurs are present everywhere, but the ones with access to market institutions, rule of law, and economic freedom have a tremendous advantage. These fundamentals — more than any program or technology — help set apart entrepreneurial countries such as the United States, Canada, Chile, and Denmark. Moreover, within developing countries, legal and institutional barriers largely explain why a few entrepreneurs succeed while the majority are stuck in necessity, not growth, entrepreneurship.

Reforms imposed by decree from above are hard to sustain. At times, governments have attempted to unilaterally improve the business environment or invest in entrepreneurial clusters. The result too often is that reforms are cosmetic, not implemented; that benefits of reform are captured by cronies; or that popular backlash unravels the gains. A competitive entrepreneurial system should be constructed through an open policy process.

Entrepreneurship ecosystems cannot be built without input from the private sector. In fact, entrepreneurial ingenuity is not limited to building companies. Entrepreneurs weave networks, solve resource constraints, and fill institutional voids. They themselves can drive reform and educate policymakers about real business needs.

Democracy provides fertile ground for institutional reforms. Democracy allows participants in an ecosystem to voice their perspectives, allows freedom to experiment with new models of economic organization, and provides crucial feedback and accountability in the policy system. These add up to what Douglass North calls adaptive efficiency, the hallmark of innovative societies.

Ultimately, local entrepreneurs and business leaders know best the innovative potential of their communities and how to realize this potential. Their insights and motivation are invaluable in targeting binding constraints to business and designing the infrastructure of ecosystems. CIPE gives private sector reformers a voice though capacity building, advocacy training, entrepreneurial education, and technical support.

How to Catalyze Change

From advocating for reforms in the legal system to guiding youth on entrepreneurship and leadership, CIPE and its partners strive to ensure entrepreneurs can rely on a supportive environment. CIPE’s programs address several fundamental dimensions of entrepreneurship ecosystems.

Advocate for business environment reforms that lower the barriers to starting, operating, and growing a business

  • In Jordan, the Young Entrepreneurs Association championed an amendment to the company’s law that reduced minimal capital requirements for limited liability companies. This led to over 1,800 newly registered small and medium-sized enterprises (SMEs).
  • In Peru, the Institute for Liberty and Democracy introduced solutions to simplify business registration and administrative procedures, and formalize commercial property. From 1991 to 1994, 381,100 businesses were formalized. Newly formalized businesses saved $692.5 million in red tape and created more than 550,000 legal jobs.1
  • In Egypt, the Federation of Economic Development Associations — which represents over 30,000 SMEs — advocated for repeal of ministerial decrees that disadvantaged small business. So far 84 decrees have been lifted, including restrictions on importing machinery for factories.

Equip grassroots associations to serve small business needs and advocate for policies supportive of entrepreneurship

  • With USAID funding in Russia, CIPE helped launch 17 regional coalitions that counted as members 225 business associations representing firms with an estimated 2.2 million employees. These associations reported a 30 percent increase in membership over the life of the project. The coalitions conducted 222 advocacy efforts related to 138 legislative changes.

Educate youth on entrepreneurship, fundamentals of market economies, and civic leadership

  • Samriddhi, the Prosperity Foundation in Nepal created the Arthalaya program, an intensive five-day workshop followed by alumni outreach to start 24 entrepreneurship clubs at universities. Over 360 students have graduated since Arthalaya began, and 40 graduates have started their own enterprises. These entrepreneurship programs also transform the way people think about the market economy.
  • In Peru, Instituto Invertir established EmprendeAhora, a civic leadership and entrepreneurship program for university students from rural areas. Since 2008, Invertir has trained over 530 students from 23 regions in Peru who have started more than 130 businesses.
  • In Afghanistan, CIPE’s Tashabos curriculum for entrepreneurship and civics training reaches 50,000 students in 44 schools across four provinces. As of 2012, 748 students either started their own businesses or improved family-owned businesses, creating 1,280 jobs.

Empower women economically through entrepreneurship and advocacy for women in business

  • The Bangladesh Women Chamber of Commerce and Industry (BWCCI) has run a series of successful advocacy campaigns built around its Women’s National Business Agenda. BWCCI has eased access to credit for women entrepreneurs by advocating with the Central Bank to provide women with lowcost loans with no collateral requirements.

Strengthen institutions such as property rights and rule of law to foster entrepreneurship

  • The Business Advocacy Network in Armenia — developed by CIPE and the Association for Foreign Investment and Cooperation — successfully advocated for simplified tax payment procedures, thus reducing opportunities for corruption, as well as a new law on state inspections, which should reduce unnecessary inspections of SMEs and related abuses.

Reduce economic informality by expanding access to opportunity

  • Kenya’s new Micro and Small Enterprises Bill establishes a Small Business Authority to regulate small business and associations; creates a small business fund to support innovation and research; and establishes a tribunal to arbitrate commercial disputes. The Kenya Private Sector Alliance was instrumental in drafting the bill, with input from other CIPE partners.

These steps to improve the environment for entrepreneurs are all about facilitating gains from specialized innovation and trade within a marketoriented system. Nobel Laureate Douglass North has referred to this as the process of building institutions that make possible impersonal exchange. In each developing country, getting the right institutional framework in place will encourage entrepreneurs to invest in knowledge, innovation, and higher productivity. By supporting the evolution of this kind of ecosystem, we are enabling the widest possible opportunities for creative entrepreneurship.2

John D. Sullivan is Exeuctive Director of the Center for International Private Enterprise.

Endnotes

1 Kim Eric Bettcher, Martin Friedl, and Gustavo Marini, “From the Streets to Markets: Formalization of Street Vendors in Metropolitan Lima,” CIPE Reform Case Study (May 21, 2009). The U.S. Agency for International Development provided principal funding for ILD’s programs. CIPE supported ILD’s advocacy initiatives with funding from the National Endowment for Democracy.

2 Douglass C. North, Institutions, Institutional Change and Economic Performance. Cambridge University Press, 1990; North, “The Foundations of New Institutional Economics,” lecture on CIPE Development Institute, www.developmentinstitute.org

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