THE SME POLICY INDEX

Antonio FanelliDeputy Head

Private Sector Development DivisionOrganisation for Economic Cooperation and Development (OECD)

Content of the presentation

1. Introduction2. The OECD Private Sector Development Division• The SME Policy work conducted by the OECD- PSD

2. The SME Policy Index• Structure, objectives and evolution• Policy approach and Methodology• Applications

3. The SME Policy index process, how it could be applied to the GCC countries

• Scope, structure and assessment process options• Partners and stakeholders• Time –frame

4. Conclusions

1. Introduction

The OECD Private Sector Development Division (PSD)

• The PSD’s mandate is to assist OECD non member countries to design and implement policies aiming at improving the investment climate and the operational conditions for private sector enterprises.

• It a relatively new division, set up in 2007, as part of the effort of the OECD to engage more with emerging and fast developing economies;

• The PSD activities are organised around regional programmes;

PSD Regional programmes

Regions Countries Main areas of work

South East Europe

(SEE)

Western Balkans,Romania, Bulgaria and

Turkey

FDISME

Innovation and Human capital

Trade and investment

Middle East and North Africa (MENA)

Magreb, Mashred and the Gulf

FDISME

Governance and regulatory reform

Women entrepreneurshipPrivate Public Partnership

Eastern Europe and South Caucasus

(Eastern Partnership)

Ukraine, Belarus, Moldava, Georgia, Armenia,

Azerbaijan

SMEFDI

Sector Competitiveness

Central AsiaAll former SU Republics excluding the Russian

Federation Sector Competitiveness

FDI

The OECD PSD approach to policy design and policy implementation

• Work is organised around regional forums where governments can compare policy experiences, seeks answers to common problems , identify good practices and coordinate policies;

• The approach is participative, promoting dialogue among policymakers and with the key policy stakeholders: representatives of private sectors, experts, civil society;

• The objective is to build long lasting partnerships with government institutions, research organisations, other international organisations.

OECD PSD work on SME policy

Main activities: Policy analysis and policy review, at country or regional

level;Analytical work on key SME policy topics or instruments,

resulting in the publication of reports and working papers: for MENA a working paper on Credit Guarantee Schemes and the forthcoming report on Young Enterprises;

Organisation of regional policy forums and conferences: i.e the MENA the Working Group on SMEs, Entrepreneurship and Human Capital Development;

Unique tool for cross country SME policy analysis: the SME Policy Index

The SME Policy Index

• An analytical and dynamic tool to review SME Policy developments on a number of policy dimension and across countries;

• A process, by which a group of countries sharing common policy goals agree on developing a joint framework for monitoring and comparing SME policy developments;

• A framework to exchange experiences, good practices and foster policy dialogue;

Evolution of the SME Policy Index• Designed and tested first for the Western Balkans in 2006• Refined and adjusted since then:

3rd cycle of regional policy assessment in the Western Balkans and Turkey: 8 countries –currently under way, to be complete in 1stQ 2012;

1st assessment : North Africa and Middle East (2008), 9 countries; 1st cycle of region policy assessment in the Eastern Partnership

countries (Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine) – currently under way to be finalised in 1st Q 2012;

Country-specific assessments finalised in Egypt, Morocco, and Moldova, Sub-national assessment in Serbia (2009), Western Balkans (2012).

• Adopted by ASEAN in November 2011 to foster cooperation in the SME policy area

2. The SME Policy Index

The policy approach

The Policy Index is based on the view that SME Policy consists of two main components:

- A horizontal policy component focusing on the improvement of the business climate for all enterprises

- A Small Business component, covering the public policy initiatives targeting specific segments of the small enterprise population

• Examples of horizontal policy actions: simplification of company registration procedures; general tax regime and administration improvements, general labour market reforms, etc.

• Examples of target interventions: support to start-ups, provision of business support services for young entrepreneurs; financial schemes supporting small enterprises in deprived areas.

The optimal mix between the two components depends on the specific country situation, on the level of institutional development and the country resources

The policy approach

• Targeted policy interventions are the public policy response to market failures and coordination failures;

• Under this view, the primarily objective of public policy is to improve the general business climate. The second objective is to intervene in case of clearly identified failures;

• The SME Policy Index includes indicators that cover both the horizontal components as well as the targeted actions;

• Emphasis on strategy elaboration, public private consultation and policy evaluation, in order to be sure that the government action is based on solid arguments: evidence based policy.

The policy approach

Other key dimensions of SME Policy: National versus sub-national: policy delivery is mostly done

at local level;Horizontal versus sectorial policy: SME Policy may be

integrated into the national development/industrial policy;Competition dimension: SME promotion is an integral

element of competition policy, aiming at diversifying the economy and putting pressure on the incumbents;

Gender dimension: entrepreneurship as a tool for women empowerment.

The policy approach

A comprehensive SME Policy Assessment has to include :• an evaluation of the business climate policy measures that

are particularly relevant for SMEs;• As well an evaluation of the quality and effectiveness of

targeted measures; The first is achievable by combining business climate

indicators, such those of Doing Business with specifically designed indicators;

The second is more complex and in a cross country exercise can be applied only to priority measures.

The policy approach

Key components of the SME Policy Index

The Policy Framework: A policy document endorsed by all the participating countries stating the broad objectives and defining the scope of the joint policy initiative

Example: in the EU the Small Enterprise Charter and the Small Business Act;Same policy framework for the Western Balkans and Turkey;The Enterprise Charter for North Africa and the Middle East

Is there an equivalent for the GCC countries?

Key component of the SME Policy Index

The assessment grid: A set of policy indicators derived from the ¨ Charter ¨, organised by dimensions (broad policy areas: such as innovation, access to finance, etc) and sub-dimensions, specific policy areas

The policy progression:

A systems policy development steps, capturing the main features associated with a specific policy development status and defining the path of convergence towards shared objectives and the incorporation of recognised good practices

The SME Policy Index methodology

SME Policy Index Dimensions (SBA)

1. Rewarding entrepreneurship and thriving family business

2. “Second chance” Bankruptcy rules

3. “Think Small First” principle4. Responsive public administration 5. Adapted Public procurement and

State Aid6. Timely payments in commercial

transactions/Access to Finance7. Benefitting from a Single Market8. Skills Upgrading and innovation9. Environment and SMEs10.SMEs and access to markets

The Western Balkans

Indicators and policy steps

The indicators:

They must be relevant and measurable> aim of what is observable and verifiable, not what is optimal;

Participants should be involved in the design of the indicators, they must share a common view;

Not too general, but not too detailed, a difficult exercise of balancing;

The policy steps:

Must be calibrated on the policy development spectrum;Must have a consistent time horizon, if the process will

last 5 years a country must be able to move from bottom to top within the agreed time-framework.

Statistical Indicators

The statistical indicators:

SME Policy Index indicators mostly qualitative;

Need to integrate them with statistical indicators about structure and dynamic of the SME population and its contribution to the economy:

Sources: National economic statistics, company survey conducted by international and national organisations (UN, GEM), other relevant surveys (i.e. labour force, innovation surveys);

Issues with different SME definition, reference base and methodology.

Actors in the SME Policy Index

• The Country SME Policy Coordinators:Senior SME Policy officials in charge of coordinating the country participation to the process and the collection of the inputs for the assessment grid and steering the regional policy dialogue process;

• The partner Organisations: multilateral and bilateral organisations providing advice and assistance through the process: the OECD has been working with three other International Organisations;

• The SME Community: business associations, experts, academics, Chamber of Commerce, donors;

The SME Policy Index is organised to involve all levels in the evaluation and input process

EC , OECD, EBRD, ETF CoreTeam

EC/OECD Experts

Local Experts

Local Consultants

Country Economic Team

Private Sector

EC, OECD, EBRD, ETF Core Team collects data and interviews and establish a preliminary level of progress for each country in each policy dimension

Local consultants build from the first measurement by collecting primary data in the countries and conducting interviews with local experts. The results analysed by the Core Team and incorporated into the level of progress

The Private Sector and the National SBA Coordinator’s Team conduct separate evaluation. This provides an opportunity to step back and analyse the measurements in a broader context. After consultation mechanisms are complete, all parties confirm a final measurement.

The Western Balkans

Case study: the Western BalkansOverall objective: • Improving the business environment for SMEs in the Western

Balkans + Turkey, set against the Copenhagen economic criteria through a comprehensive and comparative assessment of the implementation of the Small Business Act (SBA).

Specific objectives:• Providing a monitoring assessment of the progress made in the ten

policy principles covered by the SBA• Promoting the exchange of experiences in policy elaboration and

implementation among the pre-accession economies and the OECD countries, through regional meetings

• Facilitating policy dialogue and programme co-ordination• Promoting the adoption of good practices

Deliverables

• Development of a new monitoring tool for SME policy, based on the SBA

• SME stakeholder meetings in every partner economy to discuss and validate the assessment results

• Publication of a regional report on the implementation of the SBA, including regional and country-specific policy recommendations

• Monitoring of specific policy measures / priorities and workshops to coach the partner economies how to measure the impact of specific SME policy measures [see end of presentation].

The Western Balkans

Access to finance indicatorsSources of external finance for SMEs

Legal and regulatory framework

Other factors that affect demand and supply of finance

Credit guarantee schemes Cadastre Financial literacy

Public start-up funding Credit information services

Business Angels network Registration systems for moveable assets

Microfinance Facilities (including Credit Unions)

Collateral and provisioning requirements

Availability ofRisk Capital (e.g. venture capital, private equity funds)

Creditor rights

Leasing

Access to stock market

The Western Balkans

Strengths and Limitations of the Approach

IC CoreTeam

Strengths:• Participatory, flexible and adaptable to various policy

processes, institutional settings, and regional group configurations

• Complimentary to other sets of policy indicators e.g. WB Doing Business, EBRD Transition Reports…

• Built with input from international financial institutions (EBRD, EIB, EC)

• Complementary to the OECD ScoreboardWeaknesses:• Difficult balance between qualitative and quantitative inputs• Measurement problems with implementation phase (levels 4

and 5)

The Western Balkans

Organisation

• The project is jointly implemented by the OECD, the EC, the European Training Foundation (ETF), and the EBRD;

• Each organisation is in charge of the SBA areas it has the most expertise in (e.g. ETF: human capital; EBRD: access to finance);

• Co-operated with the OECD Centre for Tax Policy and Administration on the SBA dimension of SME taxation;

• Close co-operation with the OECD Centre for Entrepreneurship on the assessment of Turkey.

• Consultation also with the South East Europe Centre for Entrepreneurship Learning (SEECEL)

The Western Balkans

Timeline

April 2011: Launch of the project

April 2011 – September 2011: Tripartite assessment:i. Local consultants’ independent assessment with focus on private sectorii. Desk research by partner organisationsiii. Self-assessment by Western Balkan governments

October – November 2011: Country stakeholder meetings to compare assessments

November 2011: Regional meeting to finalise assessment scores

March 2012: Publication of regional report

The Western Balkans

Example of Output (I)

SME Policy Index 2009 Regional Report:

- 300 page regional report on the implementation of the SBA in the Western Balkans

- Analysis and scoring of over 70 policy indicators across the region including a comparison between 2007 and 2009

- Regional and country-specific policy recommendations

- Special section on policies to support high growth SMEs

- Report launching at high-level conference including European Commission Vice President and five Western Balkan Ministers.

The Western Balkans

Example of Output (II): progress in scoring between 2007 and 2009 regional reports

The Western Balkans

Example of Output (III): SME Policy Index scores for Serbia in 2009

Sco

re

The Western Balkans

3. The SME Policy index process, how it could be applied to the GCC countries

Building a GCC SME Policy Cooperation Process

Few advices based on the OECD experience:

The preparatory phase is critical for the success of the initiative: The participants must take an active participation in the definition

of the policy framework; Make sure that all relevant policy dimensions are covered and

properly developed (for instance policy to reduce the relevance of the informal economy may not be initially considered, but may be very relevant for some GCC economies;

Country experts should contribute to the design of the policy indicators and the policy steps;

Building the GCC Policy Index

Select a set of policy dimensions that are of high relevance for all the participating countries;

Identify a group of experts from the GCC countries who should contribute to the design of the policy indicators and the policy steps;

Define a set of milestones in the assessment process and secure political support for each key milestones, by reporting regularly to ministerial meetings;

Secure the support and direct involvement of international organisations to contribute to objectivity of the process and the validation of the methodology;

Make the process as participatory and transparent as possible, using web-information, by inviting inputs from stakeholders and conduct open consultation meetings.

4. Conclusions

CONCLUSIONS

• The SME Policy Index has proven to be a flexible and effective tool for fostering regional cooperation and for supporting national SME policy development;

• It is a tool that can be adapted to different international and regional contexts and various levels of economic development;

• It is a highly interactive process that involves the participation of the partner countries at all stages of project;

CONCLUSIONS

• The previous applications have shown that the assessment process can generate positive synergies, inside each country, by improving the level of intra—government communication and at cross=country level, by put in motion a peer to peer process of exchange of experiences

• The OECD is ready to assist the GCC countries in developing their own SME Policy Index, including elements from the Score Board and the Entrepreneurship Indicators.

Thank you.

Antonio FanelliAntonio.Fanelli@oecd.orgDeputy Head of Division

Private Sector DevelopmentDirectorate for Financial and Enterprise Affairs

Organisation for Economic Co-operation and Development (OECD)

Steps of SME Policy Implementation

Step 1 – Key elements of project implementation and monitoring mechanisms are already defined at the time when the SME supporting measures are approved: Objective(s) of the measure; Targeted enterprises; Eligibility criteria; Budget; Timeline; Implementation agency; Delivery and monitoring system;

Steps of SME Policy Implementation

• Step 2 – Quantitative monitoring of delivery over time: statistics about the number of applications, applications processed and approved and assistance delivery, funds allocation;

• Step 3 – Qualitative monitoring of delivery over time: checking if actual delivery matches eligibility criteria and targeted enterprises: data and information on application processing and approvals;

• Step 4 – Review of the implementation record after the first phase of implementation to control that implementation goes according to initial plans and to check if adjustments are needed. Stakeholders and representatives of the beneficiaries should be involved in the review;

Steps of SME Policy Implementation

• Step 5 – Impact evaluation: the responsible agency/ministry commissions to an independent party an impact study, according to a pre-defined methodology (see OECD Framework for the Evaluation of SME and Entrepreneurship Policies and Programmes);

• Step 6 – Review of the impact evaluation results with the participation of stakeholders, distillation of lessons learned, inclusion of lessons learned in to the policy making process.