Creating the conditions for employment and income generation is an essential component of poverty reduction. In this regard, allowing the private sector to flourish to generate and maintain employment (whether in the formal or informal sectors) in areas it is best suited to do so is critical to any successful poverty reduction strategy.
REPIM’s experience is that allowing the market to guide resource allocation underpins good private sector development policy and consequently poverty reduction. Trade policy, industry (which includes agriculture) policy, and investment policy all need to be geared to making markets work efficiently. Often, markets do not work efficiently because of distortions created by inappropriate policy, because of market imperfections and because markets for some goods and services are just immature. These constitute a problem for many poor countries. It is REPIM’s experience that the solution to such market inefficiency is to address distortions and imperfections at source rather than create a layer of bureaucracy that generates further distortions or perpetuates imperfections. This principle guides our approach to trade, investment and industry policy.
For example, proponents of trade protection often argue for trade barriers and special incentives because domestic producers cannot compete with imports. As a result, consumers, including the poor, end up paying more than they should for goods, whether domestically produced or imported. Often the reasons why they cannot compete are because of poor infrastructure or just lack of knowledge. Yet, protection encourages inefficiency and creates an anti export bias. Exports are the route to poverty reduction in poor countries as domestic demand is normally insufficient to support necessary employment opportunities.
Appropriate public expenditure on services such as education, infrastructure, and access to justice leads to the elimination of those market imperfections, which affect the external environment of a company, but in their absence raise costs to the company. There are also market imperfections that impinge on the internal operations of companies. Support programmes have been implemented, for example, to address and eliminate imperfections such as lack of market awareness and low product quality, through matching grants where the public sector subsidises their elimination and the development of markets in these areas. At the same time, it is essential to remove distorting policies such as high tariffs, tax exemptions, private monopolies, and unregulated public monopolies in order to encourage efficiency through the market.
The timetable to do these whilst ensuring that companies can adjust to the more competitive environment can be a critical issue in gaining acceptance by those negatively affected in the short-run. Too fast a move to lower levels of protection while other necessary assistance to aid adjustment is not provided may mean that potentially efficient companies may not survive. Too slow a move to lower levels of protection will ensure that the inefficient will survive unnecessarily, and the efficient will get excessive profits or will become inefficient, while maintaining a strong anti-export bias – with correspondingly high costs to poor people. This is a dilemma that confronts a policy maker and is one, with which REPIM is familiar.
International trade bodies such as the WTO provide rules for trade to protect its members from unfair trade practices and open up export markets. REPIM’s experience is that the WTO is effective in this regard, but it is important for individual countries to ensure that their own restrictive trade practices (such as high tariffs) are tackled with greater vigour than WTO procedures allow to ensure cost reductions and to remove the inherent anti-export bias.
Assignments related to Private Sector Development policy
KOSOVO As part of the Strategic Expenditure Review to implement the Economic Development Vision Action Plan, REPIM analysed the policies and plans of the Ministry of Trade and Industry with respect to deregulation, small business support and investment promotion.
SADC Assisted the SADC Directorate of Trade, Industry, Finance and Investment (TIFI) in the development of a SADC Finance and Investment Protocol (FIP), to serve as a legal framework document for the development of the finance sector and for the growth of investment in all Member States. The primary objective of the FIP is to deepen regional economic integration, to foster the economic growth of the Member States and to set the parameters for the increased cooperation and harmonization of policies within and between the financial sectors of Member States.
VIETNAM AND SOUTH-EAST ASIA REPIM provided support to a) enhance the government-led harmonisation and co-ordination process in Vietnam; b) to ensure in Vietnam the implementation of the European Union Harmonisation Report (as endorsed by the Council in 2004); and c) to enhance European Union (EU) co-ordination and harmonisation in other South-east Asian countries by (i) supporting the implementation of the results of the General Affairs Council of the European Commission (GAEC) of November conclusions Ad-Hoc Working Party on Harmonization (ADWPH) and (ii) through the dissemination of information on achievements in Vietnam.
WORLD-WIDE REPIM has been selected by DFID to provide consultancy support under its trade policy framework contract.
ARMENIA A three man REPIM Team carried out a private sector assessment in the context of an investment pipeline analysis. This included a demand analysis for funds and a review of the regulatory and other impediments to private sector development.
BELARUS Two studies have been carried out for the World Bank comprising:
an assessment of the demand for long term foreign exchange; and
an export development strategy.
NETHERLANDS ANTILLES REPIM provided two team members to an Inter-American Development Bank (IADB) project outlining an economic assistance strategy for the medium term. This addressed, inter alia, export development and import policy.
PAPUA NEW GUINEA A six man REPIM Team carried out an import tariff and indirect taxation review that included a detailed industrial and agriculture survey as well as trade and industry policy assessment. The work involved extensive consultation with the private sector (manufacturing associations and individual companies). This work also included follow up work as part of the World Bank’s team supervising the Structural Adjustment Programme. Workshops on trade policy were conducted for government officials.
UGANDA (1) REPIM provided a member of the World Bank team that prepared the third structural adjustment credit, which had a fiscal and anti-export bias focus. (2) Study on effective assistance to industry including effective protection and domestic resource cost estimation. This also examined the restructuring needs of the companies. The work involved extensive consultation with the private sector (manufacturing associations and individual companies). (3) A REPIM consultant assisted the Law Reform Commission in redrafting laws relating to business operations. Prior to this he carried out work in establishing a leasing company for the Austrian Bureau for Development Co-operation.
ZAMBIA REPIM reviewed the duty-drawback and manufacturing-under-bond schemes for the Zambia Revenue Authority (ZRA) leading to a revamp of the systems. REPIM assisted the ZRA implement the recommendations covering proposals for change; preparation of procedures, guidelines, and draft legislation; publicity; and training of ZRA staff. The work involved extensive consultation with the private sector (manufacturing associations and individual companies).
ZIMBABWE (1) REPIM assessed the capability of ZIMTRADE in the context of the matching grant scheme proposed under the Private Sector Development Project. (2) A consultant from REPIM participated in a review of Export Procedures for the World Bank. (3) REPIM assisted the Tariff Commission in the 1999 review of tariffs including EPR analysis.
COMESA/PTA AFRICA REPIM provided the Team Leader and a Regional Leader in this study to determine the impact of a common external tariff (CET) for the 22 countries of Eastern and Southern Africa. Effective protection and domestic resource cost ratios were calculated for almost 400 companies in 22 countries and the dynamic impact of moving to a CET was modelled. As a follow up the Team Leader presented a paper at the member countries’ meeting and attended the Council of Ministers meeting.
TANZANIA (1) A diagnostic review of the tax and incentive system was carried out for the government and the World Bank. (2) ODA funded export promotion and development strategy. Following the acceptance of the strategy, REPIM was invited to develop an action plan to implement the strategy. (3) One of the company's core consultants led the World Bank/Economic Development Institute Export Workshop in March/April 1995.
SIERRA LEONE (1) The company provided assistance and training in implementing the duty drawback system that it designed. (2) Reform of the structure of indirect taxation leading to new sales and excise tax rates, and import tariffs in the 1993/94 Budget. The work involved extensive consultation with the private sector (manufacturing associations and individual companies). (3) Trade and investment policy strategy analysis leading to the creation of the Sierra Leone Export Development and Investment Corporation. (4) The company worked with the Ministry of Trade and Industry and State Enterprises on a restructuring plan.
GHANA (1) Agriculture and agro-processing sector study with emphasis on investment and equipment needs. (2) Corporate Restructuring Programme for Bank of Ghana: economic, financial and managerial appraisal of companies; design of assistance packages to support financial restructuring; and formulation of institutions for implementation of restructuring programme. A total of 190 companies were assessed and, out of these, a restructuring programme was produced for 56 companies.
KENYA Analysis of the structure of indirect taxation on manufacturing industry leading to recommendation on altering rates commensurate with encouraging exports and economic efficiency. The work involved extensive consultation with the private sector and its associations.
MALAWI REPIM prepared the brief for Malawi working group carrying out the Southern Africa Development Co-operation (SADC) trade protocol negotiations. The work involved extensive consultation with the private sector and its associations.