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SURVEY OF SMALL AND MEDIUM-SIZED BUSINESSES ANALYTICAL REPORT Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized

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SURVEY OF SMALL AND MEDIUM-SIZED BUSINESSES ANALYTICAL REPORT

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SURVEY OF SMALL AND MEDIUM-SIZED BUSINESSES ANALYTICAL REPORT

MINSK2010

Contents

List of acronyms

APs administrative procedures

BEEPS business environment and enterprise performance survey

EU European Union

FSIS The Food Safety and Inspections Service

GDP gross domestic product

IEs individual entrepreneurs

IFC International Finance Corporation

IMIS Integrated Management Information System

MEs medium-sized enterprises

OECD Organization for Economic Co-operation and Development

OSHA Occupational Safety and Health Administration

PROFEPA Procuraduría Federal de Protección al Ambiente

RIA regulatory impact analysis

SCM standard cost model

SEs small enterprises

SIDA Swedish International Development Cooperation Agency

SIIP Sistema de Información Institucional de la PROFEPA

SLI State Labor Inspectorate

SMEs small and medium-sized enterprises

TRA technical regulatory acts

USA/US United States of America

Foreword

International Finance Corporation in the Republic of Belarus

International Finance Corporation

International Finance Corporation

ABOUT IFC

ABOUT THE INVESTMENT CLIMATE ADVISORY SERVICES OF THE WORLD BANK GROUP

ABOUT SIDA

The GOAL OF THE RESEARCH

The OBJECTIVES OF THE RESEARCH include the following:

The SURVEY TARGET POPULATION

The DATA COLLECTION METHOD

Methodology

FIGURE 1 SECTOR STRUCTURE OF SAMPLES

Executive Summary

LICENSING

PERMITS

INSPECTIONS

THE ROLE PLAYED BY SMALL AND MEDIUMSIZED BUSINESSES IN THE ECONOMY.

Overview of the Business Environment in Belarus

TABLE 1SMEs PLAY KEY ROLE IN MANY TYPES OF ECONOMIC ACTIVITIES

FIGURE 2BELARUS HAS LOW DENSITY OF SMALL BUSINESSES

BELARUSIAN SMALL BUSINESSES HAVE LOW LEVELS OF CONTRIBUTION TO GDP AND EMPLOYMENTFIGURE 3

TABLE 2 POSITIVE TRENDS IN SMALL ENTERPRISE DEVELOPMENT

GENERAL DESCRIPTION OF BUSINESS ENVIRONMENT IN 2008.

FIGURE 4SMEs COMPLAIN MORE ABOUT STATE REGULATION THAN MARKET CONDITIONS8

FIGURE 5 STATE-OWNED SMEs SAY BUSINESS ENVIRONMENT IN 2008 IMPROVED, INDIVIDUAL ENTREPRENEURS DISAGREE

TABLE 3 TAXES, ACCESS TO LAND, LICENSING, PERMITS AND INSPECTIONS MOST PROBLEMATIC FOR SMEs

FIGURE 6FOR MOST FIRMS, THE BUSINESS ENVIRONMENT REGARDING ADMINISTRATIVE PROCEDURES REMAINED THE SAME OR IMPROVED

TABLE 4 UNLEVEL PLAYING FIELD FOR STATE AND PRIVATELY OWNED COMPANIES

FIGURE 7 FEWER REPRESENTATIVES OF STATE-OWNED BUSINESSES WOULD WANT TO START THEIR OWN BUSINESS

SURVEY RESULTS.

Licensing

FIGURE 8LICENSING COVERAGE OF SMEs AND IEs REMAINS HIGH, 1st HALF OF 2009

TABLE 5MOST BUSINESSES WERE ABLE TO NAVIGATE LICENSING PROCESSES SUCCESSFULLY IN 2008

FIGURE 9 AVERAGE TIME AND COST FOR LICENSES HIGHER FOR SMEs THAN IEs IN 2008

FIGURE 10 LICENSING FOR RETAIL TRADE COMPRISES A SIGNIFICANT PART OF ALL LICENSES FOR SMEs AND IEs

TABLE 655% OF SMALL BUSINESSES RECEIVED LICENSES WITHOUT ANY VERIFICATION IN 2008

TABLE 7AMBIGUITY AND INCONSISTENC Y OF LICENSING REQUIREMENTS WAS THE BIGGEST PROBLEM FOR SMEs AND IEs IN 2008

REVIEW OF CHANGES IN THE LEGISLATION.

FIGURE 11 LICENSED ACTIVITIES ARE MORE BURDENSOME, BUT LESS COSTLY FOR SMEs IN 2008 THAN IN 2005

WHAT ELSE CAN BE DONE?

BOX 1. POLISH EXPERIENCE

BOX 2. CHECKLIST: INFORMATION TO ENTER IN E-REGISTRY FOR EACH LICENSE

RECOMMENDATIONS:

SURVEY RESULTS.

Permits

FIGURE 12PERMIT COVERAGE FOR ENTERPRISES REMAINS HIGH

TABLE 8 QUANTITATIVE INDICATORS OF THE BURDEN OF PERMIT-ISSUANCE PROCEDURES, 2008

TABLE 9 OBTAINING A PERMIT IS OFTEN A PREREQUISITE FOR A PLANNED CAPITAL INVESTMENT

FIGURE 13PERMIT PROCEDURES CHARACTERIZED BY LARGE NUMBER OF REQUIRED DOCUMENTS AND COMPLICATED PROCEDURES IN 2008

FIGURE 14AVERAGE TIME TO RECEIVE A PERMIT HAS DOUBLED FOR SMEs FROM 2005 TO 2008

REVIEW OF INTENDED CHANGES IN THE LEGISLATION.

WHAT ELSE CAN BE DONE?

BOX 3. WHAT IS RIA?

RECOMMENDATIONS:

SURVEY RESULTS.

Inspections

TABLE 10 AVERAGE DURATION OF AN INSPECTION HAS SUBSTANTIALLY DECREASED

FIGURE 15 INSPECTIONS COVERAGE REMAINED HIGH IN 2008

TABLE 11IEs FACE MORE UNSCHEDULED INSPECTIONS THAN SMEs IN RELATIVE TERMS

FIGURE 16 TOO MANY CONTROLLING AGENCIES WITH TOO MUCH SUBJECTIVE AUTHORITY

FIGURE 17 AMBIGUITY OF INSPECTIONS PROCESSES AND ARBITRARY AUTHORITY OF INSPECTORS REMAIN PROBLEMS

TABLE 12FIRE INSPECTORATE MOST ACTIVE, FOLLOWED BY TAX AND SANITARY INSPECTIONS

FIGURE 18 INSPECTIONS VIEWED AS PUNITIVE NOT PREVENTATIVE

LEGAL REGULATION OF INSPECTION ACTIVITIES IN 2008 AND 2009.

WHAT ELSE CAN BE DONE?

1. IMPLEMENTATION OF A RISK MANAGEMENT SYSTEM

2. CREATING AN INSPECTION INFORMATION SYSTEM

BOX 4. THE UNITED STATES, MEXICO, AND LATVIA OFFER GOOD EXAMPLES OF HOW INSPECTION INFORMATION SYSTEMS ARE DESIGNED AND MAINTAINED OVER TIME

3. FURTHER DEVELOPMENT OF INSPECTION AS WELL AS ACCESS FOR ENTREPRENEURS TO REGULATIVE ACTS

4. DEVELOPMENT AND IMPLEMENTATION OF CHECKLISTS BY INSPECTION AUTHORITIES FOR PARTICULAR TYPES OF BUSINESSES

5. REDUCTION OF FINES BURDEN ON BUSINESSES

6. STRENGTHENING THE CONSULTATIVE NATURE OF INSPECTION AUTHORITIES AND IMPLEMENTING A ‘CLIENT-ORIENTED’ PRINCIPLE

RECOMMENDATIONS:

BOX 5. THE FOOD SAFETY AND INSPECTIONS SERVICE (FSIS)

Administrative Procedures37 Specifically and in General

FIGURE 19INSPECTIONS AND PERMITS WERE MORE PROBLEMATIC FOR SMEs THAN LICENSING

FIGURE 20 OVERLAPPING APs CAUSE COMPOUNDED BURDEN FOR SMEs

TABLE 13COMPLEXITY OF ADMINISTRATIVE PROCEDURES OFTEN OVERSHADOWS CHALLENGES OFCOMPETITION

TABLE 14REGULATORY BARRIERS HINDER SME GROWTH AND EXPANSION

TABLE 15 RECENT EXPERIENCE OF ADMINISTRATIVE PROCEDURES CORRELATED WITH MORE NEGATIVE ASSESSMENTS

TABLE 16 PERSONAL CONNECTIONS ARE THE MOST EFFECTIVE IN DISPUTE RESOLUTION OF ADMINISTRATIVE PROCEDURES

CRISIS AFFECTED SMALL AND MEDIUM-SIZED BUSINESSES ACROSS ALL SECTORS AND REGIONS TABLE 17

Crisis Effects on Small and Medium-sized Businesses

FIGURE 21 CRISIS EFFECTS RAPIDLY SPREAD OVER ALL REGIONS

FIGURE 22 CRISIS EFFECTS RAPIDLY SPREAD OVER ALL SECTORS OF ECONOMY

TABLE 18REDUCTION IN THE VOLUME OF SALES IS THE MOST COMMONLY OBSERVED NEGATIVE EFFECT OF THE CRISIS

TABLE 19 DECLINING VOLUME OF SALES CORRELATED WITH REDUCTION IN FUTURE ORDERS

TABLE 20DECLINING FUTURE ORDERS LEAD TO DISMISSALS AND FREEZING OF NEW PROJECTS

MOST OF SMEs AND IEs ADOPTED SEVERAL MEASURE AIMED AT CUTTING COSTS, JULY 2009FIGURE 23

TABLE 22NEGATIVE EXPECTATIONS PREVAIL

TABLE 21COST REDUCTION MEASURES WERE LEAST SUCCESSFUL FOR SMALL MANUFACTURING ENTERPRISES

NEGATIVE EXPECTATIONS PREVAIL TABLE 22a

Expectations of Reform

TABLE 23MORE THAN HALF OF SMALL BUSINESSES DID NOT EXPECT THAT THE ANNOUNCED LIBERALIZATION PROGRAM WOULD RESULT IN REAL REFORMS

TABLE 24BUSINESSES RARELY ADJUST THEIR BEHAVIOR TO ACCOUNT FOR EXPECTED REFORMS

Appendices

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