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EXPLORING RECENT EXPERIENCES WITH POLICY
INSTRUMENTS TO SUPPORT FIRM CREATION IN
LOW AND LOWER-MIDDLE INCOME COUNTRIES
Inclusive and Sustainable Industrial Development Working Paper Series
WP 9 | 2016
DEPARTMENT OF POLICY, RESEARCH AND STATISTICS
WORKING PAPER 9/2016
Exploring recent experiences with policy instruments
to support firm creation in low and lower-middle
income countries
Fernando Santiago
UNIDO Consultant
UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION
Vienna, 2016
The designations employed, descriptions and classifications of countries, and the presentation of the
material in this report do not imply the expression of any opinion whatsoever on the part of the Secretariat
of the United Nations Industrial Development Organization (UNIDO) concerning the legal status of any
country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or
boundaries, or its economic system or degree of development. The views expressed in this paper do not
necessarily reflect the views of the Secretariat of the UNIDO. The responsibility for opinions expressed
rests solely with the authors, and publication does not constitute an endorsement by UNIDO. Although
great care has been taken to maintain the accuracy of information herein, neither UNIDO nor its member
States assume any responsibility for consequences which may arise from the use of the material. Terms
such as “developed”, “industrialized” and “developing” are intended for statistical convenience and do
not necessarily express a judgment. Any indication of, or reference to, a country, institution or other legal
entity does not constitute an endorsement. Information contained herein may be freely quoted or reprinted
but acknowledgement is requested. This report has been produced without formal United Nations editing
i
Table of Contents
Tables ............................................................................................................................................ ii
Boxes ............................................................................................................................................. ii
Figures .......................................................................................................................................... iii
Abbreviations and acronyms ........................................................................................................ iv
1. Introduction ........................................................................................................................... 1
2. Data sources .......................................................................................................................... 7
3. Analytical framework ............................................................................................................ 8
4. Product markets ................................................................................................................... 12
4.1. Supporting the creation and development of SMEs ........................................................ 12
4.2. Improving the business environment .............................................................................. 15
4.3. Promotion of business activities and persistence of picking the winners kind of strategies
......................................................................................................................................... 21
5. Labour market ..................................................................................................................... 28
6. Capital markets .................................................................................................................... 33
7. Land market ........................................................................................................................ 42
7.1. Creation of land markets ................................................................................................. 42
7.2. Promotion of clusters, industrial parks and other forms of geographical and/or industrial
agglomerations ................................................................................................................ 43
8. Technology market .............................................................................................................. 49
9. Discussion and conclusions ................................................................................................. 51
References ................................................................................................................................... 61
Annex 1 Low and lower-middle income countries according to the World Bank
classification, 2013 .................................................................................................. 68
Annex 2 Inventory of documents consulted as part of the literature review and web scan for
policy instruments used to promote the creation of new manufacturing firms in low
and lower-middle income countries ........................................................................ 69
Annex 3 Results from the web scan of government sites from organizations responsible for
industrial policy and related activities in low and lower-middle income economies ..
................................................................................................................................. 70
ii
List of Tables
Table 1: Entry density of firms across economies classified by level of income, average 2004-
2009 ............................................................................................................................................... 2
Table 2: Ranking of low and lower-middle income economies according to the ease of doing
business and the fragile states index, 2015.................................................................................... 3
Table 3: Policy interventions implemented to address market failures affecting the emergence of
selected industries in advanced developing countries ................................................................. 11
Table 4: Initiatives intended to improve cross-border trade, 2012-2013 .................................... 15
Table 5: Procedures and costs associated to the creation of a new firm in Benin ....................... 19
Table 6: Strategic support for the integration of local value chains in El Salvador .................... 25
Table 7: Morocco: Estimated labor requirements for the development of the six strategic sectors
identified in the PNEI, accumulated over the period 2009 - 2015 .............................................. 28
Table 8: Nigeria: policies and programs to support the creation of venture capital markets ...... 36
Table 9: Financial characteristics of a sample of firms in four African countries ...................... 43
Table 10: Instruments to promote the creation of manufacturing firms in low and lower-middle
income countries, by policy domain and orientation of the instrument ...................................... 54
List of Boxes
Box 1 Examples of supply oriented industrial policy interventions ........................................ 9
Box 2 A proposed typology of demand-based policy measures ............................................ 10
Box 3 Pacte National pour l’Emergence Industrielle (PNEI) 2009-2015: Dedicated
programmes to support competitiveness and development of Moroccan SMEs......... 14
Box 4 Simplifying and harmonizing requirements for firm registration in Africa ................ 15
Box 5 The GUFE in Benin..................................................................................................... 18
Box 6 New industrialization policy in Kenya ........................................................................ 23
Box 7 The development of the leather and floriculture industries in Ethiopia ...................... 24
Box 8 The Emprende Tu Idea programme in El Salvador ..................................................... 27
Box 9 Milestones for training of engineers and technicians included in Kenya’s Vision 2030
Manufacturing Sector .................................................................................................. 31
Box 10 Nigeria’s approach to technical and vocational skills development aligned with
industry needs .............................................................................................................. 32
Box 11 Senegal’s Synapse Centre – an example of a comprehensive training and financing
approach for young entrepreneurs ............................................................................... 33
Box 12 Guarantee funds intended to improve access to bank credits by new SMEs in Morocco
..................................................................................................................................... 34
Box 13 Development of risk capital in Morocco ..................................................................... 37
iii
Box 14 Recent World Bank support to SME and private sector development in Mozambique ..
..................................................................................................................................... 39
Box 15 The seed capital, development and orientation fund: Faro .......................................... 39
Box 16 The role of government incentives for and reform of investment law to attract FDI
into the Ethiopian horticulture and floriculture industry ............................................. 40
Box 17 Integrated industrial platforms (P2i) in Morocco ........................................................ 45
Box 18 Promotion of enterprise zones in Nigeria .................................................................... 46
Box 19 Combining appropriate investment conditions and cluster synergies in industrial zones
in Ghana ...................................................................................................................... 48
List of Figures
Figure 1 Number of new firms created in Benin, 1 January - 3 July 2015 ............................ 19
iv
Abbreviations and acronyms
ANPME
Agence Nationale pour la Promotion de la Petite et Moyenne Enterprise, Morocco
BDS
Business development services
BOT
Build-Own-Transfer
BOTr
Build-Operate-Transfer
CCG
Caisse Centrale de Garantie, Morocco
DBE
Development Bank of Ethiopia
DFI
development finance institutions
ECBP
Engineering Capacity Building Programme (Ethiopia)
EMCE
Euro-Mediterranean Charter for Enterprises
EMFTZ
Euro-Mediterranean Free Trade Zone
ENDE
National Strategy for Development, Mozambique
EoDB
Ease of Doing Business
EPZs
Export Processing Zones
ETI
Emprende tu idea, El Salvador
FDI
Foreign direct investment
FNEJ
National Fund for Youth Employment, Senegal
FTA
Free trade agreement
GAFI
General Authority for Investment
GNP
Gross National Product
GUFE
Guichet Unique de Formalisation des Entreprises
IDBP
Industrial Development Bank of Pakistan
IPR
Intellectual property rights
MCPSDP
Mozambique Competitiveness and Private Sector Development Project
MDTF
Multi-donor Trust Fund
MEDA
Middle East and Developing Africa
MENA
Middle East and North Africa
MIC
Ministry for Industry and Trade’s
MICNT
Ministry of Industry, Commerce, Investment and the Digital Economy and New
Technologies, Morocco
MIED
Ministry of Industry and Enterprise Development Kenya
MSE
Micro and small enterprises
MVA
manufacturing value added
v
NEDEP
National Enterprise Development Program
NGO
Non-governmental organization
NIRP
Nigeria Industrial Revolution Plan
NLPA
Nairobi Leather Products Accelerator
OCC
Orientation and Concertation Council
OHADA
Organization for the Harmonization of Business Law in Africa
P2i
Integrated industrial Platforms program
P2I
Integrated industrial platforms, Morocco
PCE
Philippine Center for Entrepreneurship
PCE
Philippine Center for Entrepreneurship
PICIC
Pakistan Industrial Credit and Investment Corporation
PNEI
Pacte National pour l'Emergence Industrielle, 2009-2015, Morocco
PODE
Project for Entrepreneurial Development
PPP
Public–private partnership
PSD
Private sector development
SACU
Southern African Customs Union
SEZ
Special economic zones
SFD
Social Fund for Development, Egypt
SIYB
Start and Improve Your Business
SME
Small and medium size enterprise
SMEPol
Small, Medium and Micro Enterprise Policy, Egypt
SMI
Small and medium size industry
SPP
Sites and Premises Programme
SSA
Sub-Saharan Africa
TTO
Technology transfer office
UNCTAD
United Nations Conference on Trade and Development
UNDP
United Nations Development Program
UNEDEP
University Entrepreneurship Development Programme
UNIDO
United Nations Industrial Development Organization
USAID
United States Agency for International Development
VC
Venture capital
1
1. Introduction
Renewed interest exists in industrial policy as a factor that contributes to structural change,
economic growth and long-term development dynamics (Crespi et al., 2014; Primi, 2015;
Reiner and Staritz, 2013). Whereas highly industrialized countries stride to maintain global
leadership, developing countries seek to tap into emerging windows of opportunity to bridge the
gap in terms of productivity, innovation performance and employment creation (Crespi et al.,
2014). The group of low and lower-middle income countries in particular, remains trapped in
unfinished transformation processes, from natural resource-based to manufacturing-driven
economies (Almeida Santos et al., 2012; Kolavalli et al., 2011; NDPC, 2010; Noman and
Stiglitz, 2015a). Challenges affecting the entrepreneurial environment in those countries result
in low levels of entry of formal firms into local markets (Table 1); these countries tend to rank
at the bottom of the pack in the World Bank’s Doing Business index (DB) (Table 2). Moreover,
low and lower-middle income countries face significant challenges in terms of inequality and
poverty, which directly affect the sustainability and viability of the local socioeconomic fabric
(Table 2). In summary, industrial policy in these countries occurs within volatile, resource-
constrained framework conditions.
The logic for industrial policy builds on the notion that the development of a productive
manufacturing sector cannot be left to the market alone, governments play a major role in the
transformation from an agriculture-based to an industry-driven economy (Basnet et al., 2014;
Brixiova, 2010; Hewitt and Wield, 1997; Mingo and Khanna, 2014). Public interventions assist
in addressing market failures pervasive in developing countries (Naudé, 2010a; OECD, 2014;
Rodrik, 2013). Moreover, recent contributions to the literature document that the economies
ranking highest on the EoDB index “are not those with no regulation but those whose
governments have managed to create a regulatory system that facilitates interactions in the
marketplace and protects important public interests without unnecessarily hindering the
development of the private sector. It is generally the bigger governments (as measured by
government consumption expenditure as a percentage of GDP), not the small ones, that tend to
provide more of the protections and efficient rules promoted by Doing Business.” (World Bank,
2014:2).
2
Table 1: Entry density* of firms across economies classified by level of income, average 2004-2009
Low income
Lower-middle income
Upper-middle income
Burkina Faso
0.07
Armenia
1.49
Brazil
2.10
Cambodia
0.23
Bhutan
0.04
Chile
2.18
Ethiopia
0.03
Bolivia
0.34
Hong Kong, SAR
15.25
Madagascar
0.10
Egypt, Arab Rep.
0.13
Mexico
0.62
Malawi
0.07
El Salvador
0.67
Thailand
0.64
Niger
0.00
Georgia
1.89
Rwanda
0.19
Guatemala
0.69
High income
Togo
0.02
Ghana
0.59
Australia
6.33
Uganda
0.62
India
0.07
Belgium
4.15
Indonesia
0.17
Canada
8.00
Kenya
0.56
Israel
4.66
Kosovo
0.14
Japan
1.43
Kyrgyz Republic
0.95
Turkey
0.99
Moldova
1.60
Singapore
6.55
Morocco
0.98
Nigeria
0.55
Pakistan
0.04
Philippines
0.23
Senegal
0.21
Sri Lanka
0.32
Tajikistan
0.26
Ukraine
0.91
Uzbekistan
0.56
Zambia
0.76
Source: Information taken and modified from Klapper and Love (2010).
Note: Entry density is defined as new firms registered per working age population (normalized by 1,000). Country
selection based on Appendix 1; the sample of upper-middle income and developed economies is presented for
comparison purposes only.
3
Table 2: Ranking of low and lower-middle income economies according to the ease of doing
business and the fragile states index, 2015.
Economy
Ease of Doing
Business Rank
Fragile
states
Uneven
Development
Poverty and
Economic Decline
Ukraine
83
67.2
5.0
5.5
Samoa
96
69.3
5.7
6.2
Ghana
114
70.7
6.8
6.0
Armenia
35
71.3
5.3
5.8
El Salvador
86
72.0
6.9
6.2
Viet Nam
90
72.7
5.8
5.7
Cabo Verde
126
74.1
7.2
6.2
Morocco
75
74.4
6.6
5.6
Moldova
52
75.1
5.6
6.6
Indonesia *
109
76.8
6.6
5.5
India *
130
76.9
7.8
5.7
Honduras
110
77.9
7.8
6.6
Benin
158
78.2
7.2
6.9
Nicaragua
125
78.4
7.6
6.5
Lesotho
114
78.6
7.0
8.2
Bolivia
157
78.9
8.6
5.9
Guatemala
81
80.3
7.9
6.1
Tanzania
139
80.8
6.7
6.7
Bhutan
71
80.9
7.2
6.0
Georgia
24
82.7
6.2
6.3
Senegal
153
82.8
7.0
7.0
Madagascar
164
83.1
8.2
7.9
Gambia
151
83.1
7.1
7.5
Kyrgyz Rep.
67
83.9
6.7
7.3
Papua New
Guinea
145
84.1
9.3
6.6
Comoros
154
85.1
6.7
8.3
Philippines
103
85.3
6.3
5.7
Swaziland
105
85.8
7.8
8.9
Mozambique
133
85.9
8.3
8.1
Zambia
97
86.2
8.3
8.0
Uzbekistan
87
86.3
7.3
7.1
4
Economy
Ease of Doing
Business Rank
Fragile
states
Uneven
Development
Poverty and
Economic Decline
Solomon Islands
112
86.4
8.6
7.5
Djibouti
171
87.1
7.5
7.2
Togo
150
87.8
7.8
7.1
Libya
188
87.8
6.4
6.1
Cambodia
127
88.5
7.4
6.1
Burkina Faso
143
89.0
8.1
7.4
Malawi
141
89.1
8.1
8.3
Congo, Rep.
176
89.6
8.1
6.7
Mali
143
89.8
7.1
7.9
Sierra Leone
147
89.9
8.5
8.3
Rwanda
62
90.5
7.9
6.7
Nepal
99
91.0
7.8
7.1
Timor-Leste
173
91.0
6.4
8.2
Egypt, Arab
Rep.
131
91.0
6.8
7.9
Sri Lanka
107
92.6
7.5
6.2
Mauritania
168
93.0
6.8
7.7
Cameroon
172
93.1
7.5
5.9
North Korea
94.0
8.0
9.0
Liberia
179
94.3
8.0
8.0
Myanmar
167
94.3
8.1
7.0
Eritrea
189
95.5
7.2
8.0
Uganda
122
96.0
7.6
7.3
Burundi
152
97.1
7.5
8.8
Ethiopia
146
97.9
7.3
7.4
Niger
160
97.9
7.9
8.1
Kenya
108
99.0
8.0
7.9
Nigeria *
169
99.7
8.9
7.3
Guinea-Bissau
178
100.6
8.1
8.4
Syrian Arab
Rep.
175
101.6
6.9
6.7
Guinea
165
102.7
7.9
8.9
Zimbabwe
155
102.8
8.3
8.3
Pakistan *
138
103.0
7.6
7.5
5
Economy
Ease of Doing
Business Rank
Fragile
states
Uneven
Development
Poverty and
Economic Decline
Haiti
182
104.3
9.3
9.4
Yemen, Rep.
170
105.4
7.8
9.1
Afghanistan
177
106.5
7.5
8.3
Chad
183
108.7
8.8
7.7
Sudan
159
110.1
8.2
8.1
Congo, Dem.
Rep.
184
110.2
8.5
8.2
Central African
Rep
185
110.6
9.4
7.8
Somalia
112.6
8.7
9.1
South Sudan
187
112.9
8.9
8.8
Kosovo
66
NA
NA
NA
Vanuatu
94
NA
NA
NA
West Bank and
Gaza
129
NA
NA
NA
Notes: * The rankings of economies with populations over 100 million as of 2013 (India, Indonesia, Nigeria,
Pakistan) are based on data for two cities. For the Fragile States index, countries that score between 90.0 and 120.0
are classified in the red “Alert” category; countries that score between 60.0 and 89.9 are classified in the yellow-
orange “Warning” category. NA: Not available.
Source: FFP (2016) and World Bank (2014, 2013).
Developing countries expect industrial policy to help them adjust and respond to an ever
changing environment; what was possible for the industrializing nations of Asia 50 years ago is
now constrained by globalization, the dynamics of innovation and the governance of
international trade and investment (Primi, 2015); whereas learning is possible across regions,
the need for policy frameworks better adapted to local conditions is evident. All of this invites
reflection and experimentation as part of continuous policy learning processes (Reiner and
Staritz, 2013). Policy interventions should consider the history and cumulative path-dependent
nature of industrial development, as well as the challenges and opportunities induced by an
interconnected world. The perception of industrial policy as essentially experimental suggests
that “it is less about picking winners than picking possible winners and dropping losers, while
maximizing learning from their failures.” (UNCTAD, 2014:123). The goal is to move away
from survival strategies for entrepreneurs to promote industrial and entrepreneurial activities
that are better tuned for high growth and productivity (Brixiova, 2010).
Naudé (2010a) and the OECD (2014) stress the importance of institutional settings around
policy, the increased complexity in policy design and the importance of flexible approaches to
6
industrial policy. They assert that industrial, competition and innovation policies are closely
interconnected; an observation that fits squarely with the ideas proposed in the literature on
learning, industrial and technology policies (Greenwald and Stiglitz, 2014; Noman, 2015;
Noman and Stiglitz, 2015a). The emphasis on innovation and technological upgrading also
draws attention to the role of industrial policy in the promotion of national innovation systems.
In a similar vein, Chandra et al. (2001) contend that while macro instruments of fiscal and
monetary control used to lever economic growth are necessary, they are insufficient; additional
interventions at the micro level should address market failures that constrain industrialization.
This paper explores recent experiences with industrial policy interventions intended to promote
and support the creation of new manufacturing firms in low and lower-middle income
economies.
1
It addresses the following questions: what can we learn from recent attempts at
expanding the base of manufacturing firms in low and lower-middle income economies? What
kind of policy interventions, or combinations of policy interventions, should be implemented to
address what kind of challenges? To answer these questions, we build on Weiss (2015), who
proposes a framework to analyse how industrial policy helps address failures in markets for
products, technology, labour, land and capital in countries at different stages of economic
development. We are interested in policy interventions in the context of their implementation,
while keeping a balanced view between positive and less positive experiences. The paper is
primarily intended to inform policymaking in low and lower-middle income economies.
The remainder of the paper is organized as follows. Section 2 describes the sources of
information used for the analysis in this paper; we begin with a review of the academic and grey
literature, followed by an exploration of government websites, ministries of industry and related
bodies, when these were available. Section 3 presents the analytical framework used to guide
the discussion; the emphasis is placed on recent debates around industrial policies that combine
supply- and demand-driven interventions; to what extent is it possible to find examples of such
policies in the countries of interest? Section 4 represents the core of the analysis; we discuss
different industrial policy interventions implemented in the context of low and lower-middle
income developing countries. Based on (Weiss, 2015), we are interested in five types of
markets, namely product markets, labour markets, capital markets, land markets and technology
markets. Section 5 comprises a brief discussion followed by some conclusions and
recommendations.
1
See Annex 1 for a list of countries included in this review, identified according to the World Bank's (2013)
classification.
7
2. Data sources
This study builds on a review of different strands of literature. In addition to scholarly literature,
we relied on two other relevant sources. First, the implementation of industrial policy in low and
lower-middle income countries is often backed up—indeed promoted—by international donor
organizations, including regional development banks (Crespi et al., 2014; David Irwin, 2011;
Krause and Kaufman, 2011; Stevenson, 2010). Accordingly, the design and implementation of
industrial policy often depends on the actions of agents other than local governments; support
for new and growing businesses is channelled through non-governmental organizations (NGOs)
and other philanthropic or social organizations (David Irwin, 2011; TEF-TAI, 2015). This
review includes reports, programme evaluations—when available—and other documentation
produced by international development agencies and some NGOs. Second, we include policy
documents, industrial development plans, reports and other materials collected from government
sources ministries of industry and related bodies—from the countries of interest.
The search consisted of a web scan of article titles using advanced search features in Google
scholar as well as standard google search engines for terms such as ‘business creation’,
‘business incubator’, ‘capital market’, ‘small and medium enterprises policy’, ‘entrepreneurship
policy’, ‘entrepreneurship promotion’, ‘firm creation’, ‘firm entry’, ‘industrial policy’,
‘industrialization’, ‘innovation policy’, ‘labour market’, ‘land market’, ‘market failure’, ‘new
firm’, ‘new manufacturing firm’, ‘new venture’, ‘private sector development’, ‘product market’,
‘start-up’, ‘technology market’, ‘young firms’ and their cognates in three different languages,
namely English, French and Spanish. We searched these terms in connection with ‘developing
country’ or ‘countries’, geographical designations by continent (Africa, Asia or Latin America)
or specific names for the countries presented in Annex 1. The timeframe for the articles
included in our analysis was 2000-2015, although some earlier documents were included which
provided some background information to more recent experiences. Articles that seemed
promising were retrieved for closer examination. Approximately 200 documents were
inventoried and surveyed for evidence (see Annex 2).
A large body of literature identified in this review refers to policy reforms and measures to
improve the business-enabling environment, with an emphasis on deregulation and efficient
functioning of markets. These policies seek to promote the ease of doing business (EoDB) and
to foster private sector development (PSD). Fuelled in part by disappointing results after
decades of implementing orthodox economic policies under the umbrella of structural
adjustment programmes, low and lower-middle income economies continue their efforts to
8
create or improve the framework conditions for industrialization
2
(Altenburg and von
Drachenfels, 2008; Chete et al., 2014; Hewitt and Wield, 1997; Rodrik, 2013; UNECA, 2001).
Accordingly, and in line with the World Bank’s EoDB framework, national development
strategies, and industrial development plans, in particular, stress policy reforms and the
promotion of PSD. The EoDB framework helps countries identify institutional bottlenecks that
constrain entrepreneurship; at the same time, international league tables shed light on existing
gaps relative to international best practice (see Table 2).
Additional evidence was found interspersed in the vast bodies of literature on entrepreneurship,
policies to support small and medium size firms (SMEs) or local economic development. A
growing body of work stands at the crossroads of innovation policy and industrial policy
(Santiago, 2015), with emphasis on interventions such as business incubators, clusters and
technology parks and others. From a geographical perspective, Africa attracts significant
attention in the literature. We queried these different strands of literature for concrete examples
of industrial policy interventions that promote and support the establishment of manufacturing
firms in low and lower-middle income countries.
A second step consisted of a more targeted web search to identify more up-to-date information
on some of the policy programmes, specific policy instruments or experiences identified in the
literature and document reviews. A list of websites used for this paper is presented in Annex 3.
3. Analytical framework
This paper builds on and contributes to an analytical framework that is useful for a practical
discussion on the application of industrial policy across countries at different stages of industrial
development (Weiss, 2015). The framework identifies five policy domains spanning markets for
products, capital, land, labour or technology; developments in these markets influence the
emergence, growth and competitiveness of manufacturing firms. Our focus lies on industrial
policy interventions that support the creation of manufacturing firms by addressing constraints
in any of those five markets in low and lower-middle income countries. While a new firm can
be an SME, this is not the only case.
Our analysis looks at industrial policy interventions from a combined supply-demand
perspective (Santiago, 2015; Stevenson, 2010); we expected to learn whether and if so, how
industrial policy helps close the loop from the establishment of a new manufacturing firm to the
promotion of a market for the products delivered by the new firm (Uyarra and Flanagan, 2010).
2
Industrialization efforts are not without its critics. Arguably, industrialization may not be the way out of poverty,
particularly in Africa; low and lower-middle income countries simply lack the conditions that allowed some Asian
and Latin American countries to industrialize (Rodrik, 2013).
9
The Brazilian and Chinese aerospace industries are examples of this approach to industrial
policy design (Santiago, 2015). Governments in both of these countries have actively promoted
the emergence of local value chains around local aircraft manufacturing firms specialized in
very specific segments of the industry. At the same time, concrete incentives ensure, even
compel, the purchase of locally assembled planes through public procurement, import taxes and
other interventions that protect and enhance the domestic market for the locally assembled
aircrafts (Goldstein, 2002; Pritchard, 2012; Vértesy, 2014).
The purpose of supply side policies, according to Elder (2013), is to support firms,
intermediaries, third sector organizations and public bodies in their capabilities and efforts to
generate and expand the country’s productive base; these measures may be defined in specific
technology areas or sectors, and leave the decision-making to the recipients of the support. Box
1 presents some supply-driven policy interventions from a PSD perspective intended to
support private sector agents and entrepreneurs. This ‘catch-all’ list illustrates the diversity and
complexity of interventions available to decision makers.
Box 1 Examples of supply oriented industrial policy interventions
Institutional environments
Structural conditions
-Privatization
-Macroeconomic, legal, regulatory and
investment frameworks conducive to
business growth
-Governance and anti-corruption
-Foreign direct investment laws
-Financial sector reform
-Industrial and trade policy
-Sectoral productivity and competitiveness
plans
-Competition policy
-Corporate governance
-Science, technology and innovation
policies
-Promotion of structures that represent the
views of private firms in dialogue with the
government.
-Physical infrastructure development
-Vocational education and training
Direct interventions
-Structures that offer specialized services to private
sector enterprises
-Institutional capacity building of intermediary
organizations
-Financial and non-financial services for SMEs
-Support for microenterprises and actors in the
informal economy
-Entrepreneurship development
-Business-to-business cooperation activities, networks,
supply chains and clusters
-SME development and growth
Source: Taken from Stevenson (2010).
10
Recent contributions to the literature document debates around demand-driven innovation
policies (COTEC, 1998; NESTA, 2007) and invite reflection on the mechanisms that allow
governments to boost demand for the products and services introduced by new manufacturing
firms. Box 2 presents a typology of demand-based measures which can be adapted to study
industrial policy interventions underpinning firm creation and growth.
Box 2 A proposed typology of demand-based policy measures
Direct use of public demand through public procurement. Government organizations
become key customers of the newly created firms, either for their own use or in combination
with private sector actors to trigger broader demand.
Support for private demand through financial and non-financial instruments. The former
seek to lower the entry costs (subsidies, tax waivers) or life cycle costs of an investment (various
forms of tax instruments) to enhance competitiveness and the ability to survive in the market
place. Non-financial instruments aim to reduce information asymmetries.
Capability building strategies to improve the capabilities of costumers to use certain
technologies and products. These measures are far-reaching, from training and education, to
marketing and awareness building about new products or new suppliers in the market.
Catalyst or brokering role to improve user-producer interactions.
“Regulation of demand or of the interface demander–producer.” Examples of this include
the introduction or reform of regulations and standards which may influence both demand and
supply.
Deliberate mix of demand and supply measures which may include pre-commercial
procurement schemes or contract R&D services, with the intention “but not prior binding
commitment, to purchase the product subsequently should the R&D contract be successful.”
Source: Adapted from Elder (2013:7).
From the above, Table 3 summarizes three possible approaches to analyse industrial
policy interventions that support the creation of new manufacturing firms; these are organized in
accordance with the type of market failure they seek to address.
This analytical approach resonates well with some recent contributions to the literature. For
example, Rogerson (2001) asserts that enterprise start-ups occur because of supply-push or
demand-pull considerations; Reiner and Staritz (2013:59) emphasize that “industrial policy can
be understood as an umbrella term which encompasses policy elements from very different
policy fields such as education and skill development, infrastructure, trade, investment or
competition policy.” In a similar vein, OECD (2014) indicates that some features of new
industrial policies include their focus on improving framework conditions for business-driven
innovation, support for productive and innovative linkages between multiple actors, the use of a
11
variety of instruments and attempts to optimize the policy mix with particular attention to
demand-side interventions, among other characteristics.
Table 3 Policy interventions implemented to address market failures affecting the emergence of
selected industries in advanced developing countries
Policy domain / locus
of market failure
Policy instruments
Supply-driven
(supply push)
Demand-driven
(demand pull)
Supply-demand mixes
(co-evolutionary public
policies)
Product
Labour
Capital
Land
Technology
Source: Author.
Failure to recognize the vertical linkages between macro- and microeconomic determinants of
industrial policy and the horizontality of industrial policy vis-à-vis other policy domains—
innovation or competition policies, for example—raises questions on the extent to which least
developed countries can deal with issues of complementarity, or overlap, across policy
interventions (Flanagan et al., 2011; Mohnen and Röller, 2001; OECD, 2010). Looking at the
case of Nepal, Basnet et al. (2014) observe that whereas the country provides industrial policy
measures including export credits, subsidies and tax incentives, this is done in a haphazard and
uncoordinated way. The authors argue that Nepalese authorities seem to be convinced not only
that they lack the capacity to manage industrial policy, but that the country cannot industrialize.
Similarly, although the strategic approach towards SME development in Sudan features a
number of positive elements—a strategy of planning, managerial and financial services,
specialized training programmes on product designs and standards, support for industrial
clusters and facilitation of FDI for technology transfer to local enterprises—the lack of a well-
articulated vision or strategy for implementation remains a concern (Stevenson, 2010).
In Egypt, the first national SME policy framework was drafted in 1998, followed by the
implementation of the Small, Medium and Micro Enterprise Policy (SMEPol) Development
Project with funding and technical assistance from the Canadian government during 2000–2008.
The SMEPol aimed to conduct research and formulate policies to remove regulatory barriers to
the development of SMEs and to enhance access to financial and non-financial support and
services. In 2004 the Small Enterprises Development Law (SME Law 141/2004) laid out
12
provisions to enhance the activities of firms with less than 50 employees, and granting the
Social Fund for Development (SFD) full implementation and coordination powers for SME
policies. One challenge Egypt faces are the multiple SME strategies drafted by different
government organizations without clear government-wide mechanism for coordination
(Stevenson, 2010).
4. Product markets
4.1. Supporting the creation and development of SMEs
Adoption of SME policies involves the creation or restructuring of specialized government
organizations responsible for implementing these policies. According to Stevenson, (2010),
Sudan was one of the first countries in the Middle East and North Africa (MENA) region to
create a government unit in charge of implementation of SME policies. The Small Scale
Industries Department was established at the Ministry of Industry in 1988, while the Ministry of
Social Planning in cooperation with the Ministry of Industry established the Supreme Authority
to Promote Small-Scale Enterprises in 1995. Today, the Ministry hosts an Industrial Policy Unit
(Ministry of Industry), but information on its mandate, resources and achievements was not
available online at the time of this review.
In Morocco, the Ministry of Industry, Commerce, Investment and the Digital Economy and
New Technologies (MICNT) is responsible for the coordination of industry policy. The
supporting policies include the release of a White Paper on SMEs in 2000, adoption of an SME
Charter in 2002 and the establishment of l’Agence Nationale pour la Promotion de la Petite et
Moyenne Enterprise (ANPME), adoption of the Euro-Mediterranean Charter for Enterprises
(EMCE) in 2004, and in 2005, the integration of a National Committee on Support for
Enterprise Creation, which called for interventions to reduce the mortality rate and support the
development of existing SMEs (MICMANE, 2005; Stevenson, 2010). The ANPME plays a
coordination role in the delivery of support services to SMEs, including technical assistance for
the creation, promotion and modernization of SMEs.
In Kenya, the adoption of a new strategic plan for industrialization for the period 2013-2017
includes the creation of the Ministry of Industrialization and Enterprise Development (MIED),
established under Executive Order No. 2/2013 of May 2013. The MIED integrated the two
former Ministries of Cooperative Development and of Marketing and Industrialization, and the
Department of Enterprise Development of the Ministry of Labour. The Executive Order
reorganized parastatals, placing 17 of them under the MIED (MIED, 2013). The MIED has a
broad mandate, including the implementation of industrialization policy, intellectual property
policy, PSD strategy and SME development, among other issues.
13
Support for new business creation is embedded in strategies to improve the
competitiveness and development of SMEs. Vivarelli (2012) asserts that from the perspective
of industrial organization, entrepreneurship is the process by which new enterprises are founded
and become viable. In low and lower-middle income countries, entrepreneurship policy is still at
an early stage, but significant efforts are underway. Stevenson (2010) and Oukil (2011) find that
governments in the MENA region have set targets for new enterprise creation in national
development plans, together with strategies and agencies mandated to achieve those targets. The
authors conclude that in practice, the environment remains only poorly conducive to facilitating
accelerated entrepreneurial activity. Important barriers remain in areas such as start-up
financing, start-up procedures and development of BDS; furthermore, a poor culture for
entrepreneurship resulting from a history of government-controlled economies is also prevalent.
From a Latin American perspective, Hidalgo et al. (2014) criticize entrepreneurship policies,
which have traditionally focused on assisting SME operations without sufficient attention to
SME growth and development. This criticism accompanies the finding that a large share of
entrepreneurial activity in low and middle-income economies—Guatemala, for example—
reflects survival and self-employment strategies rather than opportunities for growth (Hidalgo et
al., 2014).
Some countries strive to better support SMEs by targeting specific segments of firms. In the
context of the Pacte National pour l’Emergence Industrielle (PNEI) 2009-2015 in Morocco
(Royaume du Maroc, 2008), the ANPME manages programmes tailored to the needs of firms
with high growth potential and those in a restructuring or modernization phase (Box 3 ).
SME policies are often linked to the adoption of international SME policy agreements or
participation in international cooperation mechanisms with an influence on local SME
policies. According to Stevenson, (2010), several MENA countries benefit from participation in
EU-led SME policy exercises. Countries such as Egypt, Morocco, Palestine and Syria became
signatory parties to the Euro-Mediterranean Charter for Enterprises (EMCE) in 2004. “These
charters are designed as tools to structure policies in support of SMEs and enterprise
development at the national level, help foster an entrepreneurial culture and build a framework
for private sector reforms.” (Stevenson, 2010:60). The EMCE seeks to set up the necessary
conditions for businesses to comply with common standards and technical regulations and
ultimately, to benefit from the Euro-Mediterranean Free Trade Zone (EMFTZ). Countries that
have adopted the EMCE usually introduce microeconomic reforms intended to boost business
creation, competitiveness, entrepreneurship and innovation (Stevenson, 2010).
14
Box 3 Pacte National pour l’Emergence Industrielle (PNEI) 2009-2015: Dedicated programmes to
support competitiveness and development of Moroccan SMEs
The PNEI aims to boost SME competitiveness by targeted support to SMEs with a high productivity and
growth potential. The ANPME has set in place several flagship programmes:
The Imtiaz Programme supports growth plans for promising SMEs. Target firms are those interested in
scaling up in terms of size, profitability, employment creation and value added under a Contract for
Growth. The programme offers:
Direct investment allowance of up to MAD 5 million per company, and representing 20% of the
company’s financial needs
Improved access to bank credit.
Selection process:
Beneficiaries are selected based on a national competition sanctioned by a committee of
representatives from the public and private sector
A banking institution partner of the programme validates the applicant’s dossier and then sends it to
the ANPME
The timing of the announcement of decisions is included as part of the calls for proposals
Projects can be self-financed by the firm or with support from commercial banks.
ISTITMAR-Croissance is a programme that offers a prime on investments made by micro enterprises
with annual sales of ≤ MAD 10 and which proposes:
A project for industrial transformation or valorisation, or
A project aiming at strengthening the linkages with an important donor/client in terms of
sponsorship, spin-off, subcontracting, or
An investment project with a strong potential for growth and upscaling, or
An innovative economic or business model intended to respond to an identifiable market need.
The Moussanada Programme aims to improve SME productivity. A novel feature of the programme is
that it allows SMEs to select benefits that meet their specific needs from a predefined list. The options
include specialized training programmes, adoption of information systems and integration of new
technologies, as well as accompaniment services.
Support targets both support functions (strategy, business function, quality, organization) and core
business activities (production processes, design, R&D, etc.)
Government contribution of up to MAD 1 million.
Public / private funds to cover capital needs of SMEs with high growth potential; these include about
three different funding mechanisms, namely venture capital (VC), capital development and transmission.
The objectives of this initiative are to:
Address under-capitalization problems that affect SMEs
Improve access to long-term financing from commercial banks
Assist SMEs via the provision of advisory services related to different aspects of management and
operations
Facilitate the processes of transmission and recovery of SMEs
Accelerate the creation of SMEs.
The Moroccan government committed to mobilizing around MAD 2 billion to support these programmes,
including a State contribution of MAD 350 million for the creation of public / private funds. In the case of
Moussanada and Imtiaz, effective implementation requires close collaboration and commitment from
private partners and State banks; this collaboration was particularly important for the establishment of
competitive mechanisms to identify and select beneficiary enterprises and to facilitate their access to
credit.
Entrepreneurship development intends to support the development of entrepreneurial skills within
higher education institutions, programme management of SMEs as well as executive Master’s in Business
Administration (MBA) programmes.
Source: PNEI (2016) and MarocPME (2016).
Based on the experience of 16 African countries members of the Organization for the
Harmonization of Business Law in Africa (OHADA), the World Bank (2011a) illustrates how
15
business registration requirements can be improved through international collaboration and
harmonization (Box 4 ).
Box 4 Simplifying and harmonizing requirements for firm registration in Africa
Establishing a new business in Africa requires entrepreneurs to provide company registers with a
company seal or extracts of criminal records and medical certificates prior to registration. Obtaining
such documentation is cumbersome, costly and lengthy; the process frequently requires travel and
long waiting times before all the necessary documentation is obtained. The 16 members of the
Organization for the Harmonization of Business Law in Africa (OHADA)
3
, which share similar laws
on company incorporation, are reviewing and updating the requirements related to the establishment
of a new business at the regional level.
In December 2010, the OHADA Council of Ministers adopted a new Uniform Act on General
Commercial Law. Now, entrepreneurs have 75 days after incorporating their company to submit
copies of their criminal records. They can start operations after providing a sworn declaration that
they have committed no crime and are not subject to any restrictions to commercial activity.
Countries such as Benin and Guinea-Bissau have already started implementing the revised OHADA
law.
Source: Taken from World Bank (2011a).
4.2. Improving the business environment
Improving infrastructure and regulations related to the participation of local firms in
foreign markets. The World Bank (2014) identified Benin as one of the best performers in this
area. The local government implemented a series of changes to help reduce delays by 10 per
cent in the processing of export and import procedures in 2012/13 alone. Some of these
improvements started as early as 2007 when Benin began renovating its ports and setting the
necessary conditions to allow 24-hour operations, secure payment systems and an expanded
container terminal in Cotonou. “In 2010 an Automated System for Customs Data (Asycuda++)
was installed, allowing for electronic submission of the documents required to export and
import. In 2012 an electronic single window and electronic payment system was introduced,
further reducing document preparation times.” (World Bank, 2014:107). Examples of initiatives
to support participation in international trade are presented in Table 4 .
Table 4 Initiatives intended to improve cross-border trade, 2012-2013
3
The members of OHADA are Benin, Burkina Faso, Cameroon, the Central African Republic, Chad, the Comoros,
the Republic of Congo, Côte d’Ivoire, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Mali, Niger, Senegal and
Togo.
16
Action
Economies
Highlights
Improved customs administration
Benin, Burundi; Republic of
Congo; Swaziland; Ukraine,
Uzbekistan
Uzbekistan abolished the need to
register import contracts with
customs
Introduced or improved electronic
submission and processing
El Salvador; Madagascar; Sri
Lanka
---
Introduced electronic single
window to process documentation
El Salvador, Mozambique,
Rwanda
----
Strengthened transport and port
infrastructure
Benin, Central African Republic
The Central African Republic
rehabilitated the key transit road
at its border with Cameroon
Improved port procedures
Benin; Guinea
----
Introduced or improved risk-based
inspections
Mauritania
Mauritania introduced a risk-
based inspection system with
scanners
Source: Adapted from World Bank (2014:107).
In line with PSD strategies, regulatory reforms seek to ease business registration and the
acquisition of business licences. Several countries have created one-stop-shops to facilitate
incorporation/registration of new firms and, in some cases, access to additional business
development services (BDS). According to the World Bank (2014:1), “on average around the
world, starting a business takes 7 procedures, 25 days and costs 32 per cent of income per capita
in fees. But while it takes as little as 1 procedure, half a day and almost nothing in fees in New
Zealand, an entrepreneur must wait 208 days in Suriname and 144 in República Bolivariana de
Venezuela.” Significant barriers to firm creation in low and lower-middle income countries
result from cumbersome requirements to register a new or informally existing firm.
Inspired by the World Bank’s EoDB framework, the literature focuses strongly on policy
reforms geared to reduce the time and costs associated with registering a new business; in
addition to stimulating formalization of existing informal businesses, reforms are expected to
boost the creation of formal firms and enhance competitive pressure to crowd out inefficient
firms, thereby accelerating the diffusion of new business practices and raising productivity
(Altenburg and von Drachenfels, 2008). The World Bank (2011b) describes the experience of
58 economies at different stages of development, which have benefited from the introduction of
ICTs to facilitate business start-up and registration processes. A first step is to make registration
records available electronically, as it helps to improve security and prevent potential losses of
data; it also enhances transparency and information sharing and makes it easier to introduce new
online services.
17
Stevenson (2010) documents the existence of one-stop-shops for business registration and
licensing with different levels of operability and experience in MENA; unfortunately, she also
noted that knowledge-sharing remains limited throughout the region. Countries such as Egypt
and Morocco have dramatically reduced the paid-in capital requirements for new limited
liability companies. Progress is heterogeneous with regard to the implementation of regulatory
reforms to improve the business and investment climate, such as the modernization of company
laws, competition laws, bankruptcy laws and taxation regimes.
In the specific case of Egypt, Stevenson (2010) notes that the SFD established one-stop-shops
for micro and small enterprises (MSEs) in each governorate to reduce the time and cost of
registering an enterprise. The General Authority for Investment (GAFI) implemented similar
initiatives in major cities with the goal of streamlining business registration and licensing
processes for investors. GAFI has also reduced the costs of incorporating a limited liability
company from EGP 50,000 to EGP 1,000, which, according to the author, has resulted in an
increase in the number of incorporations of joint stock companies.
In Benin, the creation of a one-stop-shop for the formalization of enterprises (Guichet Unique
de Formalisation des Enterprises - GUFE) (Box 5 ) in 2012 was followed by additional
dispositions in 2014 to reduce the costs associated with the GUFE by 61 per cent, and the
suppression of minimum capital requirements for a new incorporated firm. The immediate result
was a reduction in costs and time required to establish an enterprise. To some extent, this can
explain Benin’s advance in the World Bank’s 2015 Doing Business ranking, up 16 places to
position 151 out of 189 countries. On average, the time needed to start a new business reduced
from 18 to 12 days (Ndoye and Fall, 2012); in some cases, registration procedures may take as
little as an hour (Table 5 ).
18
Box 5 The GUFE in Benin
On 26 March 2012, the Government of the Republic of Benin adopted Decree 2009-542 of 20
October 2009 on the creation of the Guichet Unique de Formalisation des Entreprises (GUFE).
GUFE is an online, single window that integrates all government procedures required to create a
firm; its mandate is to reduce the time—to 24 hours or less—and costs required to establish a firm in
Benin.
In 2014, under Decree 2014-194 of 13 March 2014, the GUFE was placed under the Ministry of
Industry, Commerce and SMEs (MICPME). The GUFE was given full organizational and financial
autonomy as well as an expanded mandate to follow up on enterprise performance. GUFE anchors
the government’s efforts to improve competitiveness and positioning within the Doing Business
ranking as measured by the procedures necessary to create a new enterprise.
GUFE’s governance structure builds on the Orientation and Concertation Council (OCC) and the
Director General’s office. The OCC is responsible for defining, following up and evaluating GUFE’s
performance and for dealing with some general administrative, financial and employment conditions
for staff. Membership to the OCC includes representatives from government organizations of direct
relevance for firm registration, namely fiscal, international trade, investment and the official registry
related to land use and property rights. The Director General is responsible for the daily operations
of the GUFE. Funding for GUFE stems from the applicable fees for firm registration or
formalization, government allocations, donor funding, and other revenue from GUFE’s activities.
GUFE operates at two levels, namely: (1) the creation of new single establishments or incorporated
enterprises and (2) the formalization of firms operating in an informal market.
Incentives to formalize firms include facilitating access to a series of tools developed by the
government to support firms in Benin; these include:
Programmes operated by the National Agency for the Promotion of Employment (Agence
Nationale pour la Promotion de l’Emploi, ANPE),
The Technical Assistance Cell (Cellule d’Appui Technique, CAT),
The National Funds for the Promotion of Enterprise and Youth Employment (Fonds National
pour la Promotion de l’Entreprise et l’Emploi et des Jeunes, FNPEEJ),
The Fund for the Development of Continuous Professional Training and Apprenticeship (Fonds
de Développement de la Formation Professionnelle Continue et de l’Apprentissage,
FODEFCA),
The Center for the Promotion and Organization of SMEs (Centre de Promotion et
d’Encadrement des Petites et Moyennes Entreprises, CEPEPE),
Authorized Management Centres (Centres de Gestion Agréés).
GUFE offers individuals the incentive to register as entrepreneurs at zero cost and the possibility to
access loans from commercial banks or from the African Development Bank.
Performance data for the first half of 2015 indicates that the GUFE registered a total of 7,041 new
firms, of which 72.5 per cent were individual firms, while the rest were incorporated businesses. The
General Directorate of Cotonou alone represented about 49.5 per cent of the new enterprises,
including both single establishments and incorporated firms. In second place, the Antenne GUFE
Abomey Calavi represented about 15.0 per cent of new registered firms; the remaining registrations
were distributed across other provinces.
19
Figure 1 Number of new firms created in Benin, 1 January - 3 July 2015
Source: GUFE’s website, last accessed 2 January 2016, see GUFE (2015).
Table 5 Procedures and costs associated with the creation of a new firm in Benin
Procedure
Cost (Francs)
Incorporated firm
Single establishment
Registration documentation
Free of charge
----
Registration of company journals
Free of charge
----
Inscription to the Registre de Commerce et
de Crédit Mobilier (RCCM)
12,000
5,000
Letter of commerce / letter of importer
5,000
5,000
Publication online, GUFE
Free of charge
Free of charge
Inscription Unique Fiscal Identifier
(Identifiant Fiscal Unique)
Free of charge
Free of charge
GUFE services
Free of charge
Free of charge
Total
17,000
10,000
Notes: Fees applicable to nationals and foreigners; expected waiting time from submission of application until actual
registration: 1 hour.
Source: GUFE’s website, last accessed 2 January 2016.
Burkina Faso offers a different story. In 2014 the country passed a decree that reduces the costs
and procedures relating to the incorporation of new firms; the minimum requirement of social
capital decreased from CFA 1 million to CFA 100,000. This notwithstanding, the country lost
six places in the 2015 Doing Business ranking, down to position 167 out of 189 countries. As
regards the regulations around the creation of new firms, the country dropped from position 149
to 153. Registration of a new firm can take up to around 13 days (Dayo et al., 2012:9).
0
500
1000
1500
2000
2500
3000
3500
DG
Cotonou Abomey
Calavi Porto
Novo Abomey Parakou Lokossa Natitingou Kandi
Individual units Incorporated enterprises
20
Between 2013 and 2014, the procedures to incorporate a new company were simplified in
Cameroon. This includes the establishment of Centres for the Formalization of New Enterprises
(Centres de formalités de création d’entreprise, CFCE). Such centres currently exist in
metropolitan areas—Yaoundé, Douala, Bafoussam, Bamenda et Garoua—and will be replicated
in other locations (Doffonsou et al., 2012:9).
In the Congo, the government has announced that the maximum delay to register a new business
should be 48 hours (Dia et al., 2012).
In Côte d’Ivoire the creation of a one-stop-shop at the Center for Investment Promotion (Centre
de promotion des investissements en Côte d’Ivoire, Cepici) is expected to facilitate the
incorporation of new firms and the reduction of costs and time to establish a new business. It
includes a total of 34 reform initiatives around matters related to the judiciary, import-export
and energy, among others. The objectives include expanding support channels to facilitate the
creation of new firms, cut fiscal costs and waivers on minimum capital requirements for SMEs
(Yembiline et al., 2012).
In Mauritania, reforms related to the creation of new firms have reduced the time needed to
incorporate a company from 19 days to 48 hours only. The associated costs also decreased to
around MRO 35,000 (about EUR 100), or 11.5 per cent of gross national product (GNP) per
capita, from the previous MRO 130,000 MRO (about EUR 380) or 46 per cent of GNP per
capita. The government has created a one-stop-shop that joins the seven different government
instances involved in establishment of new companies (Ndong Ntah, 2012).
Based on a survey of African entrepreneurs, TEF-TAI, (2015:9) documents the relevance of
business registration and regulatory compliance initiatives for aspiring African entrepreneurs,
such as those related to one-stop-shops. The report recommends the creation of single entities,
either physical or online one-stops-shops that facilitate all necessary paperwork to legally
register a business or to establish a new enterprise. The initiative is expected to reduce costs and
time to file the necessary documentation and to help curb corruption.
Notwithstanding the widespread efforts to ease the costs of new business registration,
actual results on the dynamics of new manufacturing firms has yet to be documented. The
evidence suggests that policy reforms have assisted some countries in climbing up in the global
Starting a Business index (World Bank, 2014, 2011a, 2011b). However, critics of the EoDB
framework assert that our understanding of what precisely constitutes a reform, or the effects of
reforms on entrepreneurship, employment creation and the general economic dynamics is still
limited (CIPE, 2014; Klapper and Love, 2010).
21
Klapper and Love’s (2010) study on reforms involving 91 countries at different levels of
development concluded that the costs and necessary days and procedures to start a business are
important predictors for the number of new firm registrations. However, they found that minor
reforms generally have no statistically significant effect on new firm registrations. For a single
reform to boost new firm registrations, it must reduce the costs and number of days needed to
establish a business by 50 per cent to -60 per cent. A 40 per cent reduction in procedures can
help stimulate new firm registrations. The authors found synergies in multiple reforms of two or
more business environment indicators, with simultaneous reforms being preferred to sequential
reforms. Notwithstanding these results, the authors assert that “an outstanding question is
whether, and to what degree, there exists an economically meaningful relationship between the
costs, days and procedures to start a business and the actual number of new firms that register
each year.” (p. 2).
Building on the experience of Benin, CIPE (2014:26) poses some additional questions, many of
which are consistent with the scope of this paper: “What do [policy] reforms mean in practice?
[Do they] spur new business registrations? If so, how large [is] the effect? Could a smaller
reform have generated the same impact? Do reforms that simultaneously affect more than one
aspect of the registration process — such as by reducing both the cost and the number of
procedures — pack an especially large punch?”
4.3. Promotion of business activities and persistence of picking the winners kind
of strategies
Support to a specific industry or sectors of economic activity. Stevenson (2010) identifies
different national sector strategies to increase the performance of industries and enterprises in
MENA. In Morocco, for example, the PNEI 2009-2015 proposed a set of six specific industries
including, offshoring, auto parts, aeronautics and space, specialized electronics, textiles and
leather, and agrifoods (Royaume du Maroc, 2008). The PNEI consists of over 100 specific
measures to promote industrial activity, many dealing with the competitiveness of SMEs, the
provision of training and the development of markets for capital and land (Royaume du Maroc,
2008; Stevenson, 2010).
Kenya has identified specific industries, such as leather and leather products, food processing,
textiles and apparel as relevant for addressing high levels of unemployment; in practice, support
is targeted at the creation of small processing enterprises or the formation of cooperatives and
other forms of entrepreneurship (MIED, 2013). The strategic approach to improve and upgrade
the productivity of leather and leather products producers in both the formal and informal
sectors is expected to include the creation of two leather product accelerators: 1), the Nairobi
22
Leather Products Accelerator (NLPA) in the formal sector, and a satellite accelerator for the
informal sector in Kariokor Market (World Bank, 2015). The proposed NLPA is intended to
“promote technology absorption, greater flow of information, collaboration among firms, and
remove binding constraints on the competitiveness of leather products firms. It will offer
common machinery for prototyping, training in production, marketing, and business
management, and a nurturing environment for leather goods and services start-ups.” (World
Bank, 2015:70). Both these accelerators are expected to operate at a minimum cost-recover
basis. Despite the large amount of policy documents containing specific measures in support of
the aforementioned sectors, progress is often hampered by the disconnection between
industrialization plans and actual implementation capacities (Box 6 ) (MIED, 2013; Ronge
and Nyangito, 2000).
The picking the winners approach recognizes the pending economic transformation of low
and lower-middle income economies; industrial policies seek to promote an agriculture-
driven industrialization. The midterm development goal of Ghana’s Medium Term
Development Policy Framework is to lay the foundation for the structural transformation of the
economy by 2020 (Kolavalli et al., 2011; NDPC, 2010). The transformation is expected to build
on industrialization, a modernized agriculture sector and the sustainable exploitation of Ghana’s
natural resources, particularly minerals, oil and gas (NDPC, 2010). Wangwe et al. (2014)
document similar objectives around agriculture-led industrialization in the case of Tanzania; the
building of a competitive industrial sector includes the promotion of a competitive business
environment and improvement of the existing development corridors and infrastructure.
Ethiopia is one of the African countries where the linking of the agriculture and the industrial
sectors has achieved significant progress. Building on what he terms the ‘creation of islands of
success’, Noman (2015) provides examples of the leather and floriculture industries as fairly
consolidated success stories (Box 7); in the author’s view, other industries such as textiles and
garments as well as wine are also beginning to show very promising development dynamics. An
active industrial policy and strong commitment at the highest political level help explain this
positive performance of selected Ethiopian industries.
23
Box 6 New industrialization policy in Kenya
The Kenyan government intends to transform the country into a newly industrializing economy by
the year 2030 (MIED, 2013; Ministry of Industrialization). The government’s strategy emphasizes
selective encouragement of industries to produce for export and increase their employment potential.
In addition, it introduces two novel features compared with previous approaches. First, industry is
identified as the leading sector in economic development; second, specific industries are earmarked
for government support; the metallurgical, non-petroleum-based chemical, petro-chemical,
pharmaceutical, machinery and capital goods industries are expected to initially produce for the
domestic market and eventually for the export market. If successful, this strategy should help
diversify and induce positive dynamics to the industrial base by the year 2030. Whereas
manufacturing GDP is expected to grow at a sustained pace of 10 per cent per annum, GDP per
capita should multiply by five times relative to its 1996 level (MIED, 2013; Ronge and Nyangito,
2000).
In its first phase, the industrialization programme focused on promoting SMEs with strong links to
the agricultural sector and use relatively simple and labour-intensive technologies, which are
expected to increase the employment impact of industry. Once infrastructural and other constraints
have been overcome, the second phase aims to promote large-scale intermediate and capital goods
industries (Ronge and Nyangito, 2000).
For the period 2013-2017, the priorities include: (i) to develop policy, initiate legal and institutional
reforms for industrialization, co-operatives and enterprise development; (ii) enhance FDI for
industrialization; (iii) to mobilize savings and investments for industrialization and firm
development; (iv) to enhance SMEs’ capacity for growth; (v) to promote R&D, innovation and
technology adoption; (vi) to build capacity for industrial and enterprise development and quality
service delivery; (vii) to promote high value addition, product development and diversification; (viii)
to enhance standards, quality infrastructure and intellectual property rights (IPRs) protection; (ix) to
improve productivity and competitiveness, including in the cooperative sector; and (x) to create a
conducive business environment for PSD and competitiveness.
Some perceived weaknesses of this ambitious industrialization strategy include its emphasis on
picking winners, as was the case in the Republic of Korea and in Taiwan (ROC), without sufficient
reflection on the existing preconditions in Kenya. The proposed two-phase industrialization strategy
implies a reversal in the second phase of the trade liberalization measures undertaken in the first
phase. In addition to reducing the credibility of the initiative, the risk of macro incompatibility is
high. The fiscal cost associated with the implementation of phase two contrasts with the
government’s goal of maintaining a balanced budget and eventually, achieving a surplus. From a
regional development perspective, the new policy maintains the current regional concentration of
industries but seeks to expand industrialization to rural areas by subsidizing private investment and
improving infrastructure in those areas. This approach could be constrained by insufficient financial
capacities of local authorities and the expected negative impacts on rural SMEs, as infrastructure
development tends to favour access to markets by urban firms.
Source: Ronge and Nyangito (2000) and MIED (2013).
24
Box 7 The development of the leather and floriculture industries in Ethiopia
Floriculture and leather processing have developed rapidly, with an overall significant impact on the
economy. Exports of floriculture rose from less than USD 1 million in 1997 to USD 210 million in
2011. After a slow start, exports of leather goods rose gradually between 2005 and 2010, and are
now soaring, led in part by Chinese investments in the industry. For instance, a major Chinese shoe
producer, Huajian, has established a large factory in Ethiopia; by 2014, the factory had already
begun producing some 2,000 pairs of shoes per day for designer labels and employed some 1,600
workers. Huajian is implementing an aggressive strategy to expand production, with targets around
USD 4 billion in annual exports within a decade. Huajian is also enhancing the skill base of its local
labour force by sending a significant number of them for training to its headquarters in China. Both
leather and floriculture have contributed significantly to the increasing exports of Ethiopian
manufactured products, totalling USD 3 billion in 2012.
Some common elements in the industrial policies supporting the floriculture and leather industries
include:
access to finance on fairly attractive terms through the Development Bank of Ethiopia (DBE),
close government-business consultations, and
flexibility in modifying the forms and degrees of support.
Industrial policies also addressed the two industries’ diverging needs:
the leather industry had to deal with coordination failures along the value change that had to be
tackled simultaneously to achieve global competitiveness.
the floriculture industry faced significant challenges in areas such as logistics, land acquisition
and initial capital (that needed to be financed at terms that were not too short-term and too
costly for such investments).
The leather industry benefited from very active government support for the acquisition of
technological capabilities, including the setting up of a leather training institute whose training
programmes often involved foreign experts subsidized by domestic firms. The State provided land
and semi-constructed factories as well as basic infrastructural facilities in industrial zones. Tax and
regulatory policies used to encourage upgrading included a ban on exports of raw hides and skins
and export taxes on minimally processed, low value-added products.
For cut flowers, land was provided at fairly modest prices in the proximity of the airport and reliable
airfreight services, including the promotion of air-conditioned transport to the airport and
coordination with Ethiopian Airlines, so that the flowers could be transported to overseas markets—
especially Amsterdam—at the appropriate time.
At a more macro level, Ethiopia’s success can be explained by the substantial improvement in
physical infrastructure, especially in transport, communications and energy, and the effective
mobilization and use of foreign assistance, driven by clearly articulated government priorities.
Source: Taken and adapted from Noman (2015) and Noman and Stiglitz (2015b).
25
Strategic promotion of local value chains and supplier development programmes,
including some specifically targeted at SMEs. Examples of such interventions stem from the
new industrial policy in El Salvador (Table 6 ).
Table 6 Strategic support for the integration of local value chains in El Salvador
Programme
Interventions
Target
Responsible
organization
Website
Programa de
Desarrollo de
Proveedores
(PDP)
(Supplier
development
programme)
-Adoption of initiatives to
promote forward and
backward linkages between
SMEs and large
manufacturing firms
-Improve the capacity to meet
strict market standards
-Identify and support anchor
firms that are able to sustain
the dynamics of the value
chain
Generalized to
manufacturing
sector
Programa
Desarrollo de
Proveedores El
Salvador
(PDP/PNUD-
CCIE).
www.pdp
.com.sv
Programa de
Encadenamie
ntos
Productivos
(EP) (value-
chain
programme)
-Support access to new
markets for existing firms
-Promote the entry of new
firms in existing markets
-Development of strategic
linkages within value chains
-Diagnostic of bottlenecks and
barriers to the integration of
the value chain
SMEs and
producer
associations
Dirección de
Encadenamientos
Productivos
EP/MINEC
www.min
ec.gob.sv
Source: Adapted and translated from Ministerio de Economía (2011).
Start-up promotion through entrepreneurship networks: CIPE (2014) finds that in addition
to the creation of institutions like chambers of commerce and industry clubs, entrepreneurship
promotion in the Philippines has been mainstreamed via enterprise networks such as the
Philippine Center for Entrepreneurship (PCE). PCE has the mandate to promote the creation of
“Go Negosyo Communities”, as a mechanism to draw the academic, business and government
sectors together to form a triple-helix type ecosystem in which continuous networking,
mentoring and cooperation among academics, entrepreneurs, industry experts, venture
capitalists and government takes place. Each of these communities is distinguished by its ability
to produce a continuous stream of start-up ventures.
26
Open competitions help identify, select and support promising entrepreneurs. In the mid-
1990s, El Salvador tried to introduce a start-up programme, Emprende Tu Idea (ETI) (Start Up
Your Idea), based on a methodology developed by the McKinsey Company (Kantis et al.,
2005). ETI’s objective was to help low-income youth develop business ideas and to put these
into practice (Box 8 ). Recent initiatives to promote entrepreneurship in the country include
the launch of “Emprende el Salvador” as a country trade mark; the objective is to demonstrate
the commitment of the government, universities and other organizations to entrepreneurship
(CONAMYPE, 2015).
The recently adopted National Enterprise Development Programme (NEDEP) in Nigeria
includes concrete strategies to promote entrepreneurship via the use of open competitions
(SMEDAN, 2013). For example, the University Entrepreneurship Development Programme
(UNEDEP) is expected to instil and develop entrepreneurship talent at the undergraduate level,
and embed the enterprise development framework in all universities. Concrete strategies
include:
Running entrepreneurship clubs at every university,
Facilitating a mentoring platform between the students and successful entrepreneurs, and
Organizing a business plan / operations competition, with the potential of debt /equity
investment at the end of the business operations cycle.
At the same time, UNEDEP will analyse, select and financially support existing student
enterprises with scalable potential, as well as encourage the formation of new enterprises
(SMEDAN, 2013).
27
Box 8 The Emprende Tu Idea programme in El Salvador
The ETI was launched around 1997 as an experiment run by the international non-profit corporation
Technoserve. The experiment was part of Technoserve’s strategy to fight poverty; the mechanism
was to promote entrepreneurship in urban areas. Technoserve transferred and adapted a methodology
previously used by McKinsey & Co. in South Africa. The El Salvador Programme was responsible
for training local staff involved in a business plan competition ideas for new entrepreneurs.
Technoserve also established an institutional alliance with the Salvadoran Foundation for Social
Action (FUNDEMAS) which at the time served as a franchisee of another methodology for the
development of entrepreneurial capacities under the name EMPRETEC, with support from
UNCTAD. The Salvadoran government participated in ETI through the National Commission on
Micro and Small Enterprises (CONAMYPE).
The first competition was carried out in 2002 based on a national call for submissions with a limit of
300 entries. Four finalists received cash prizes of USD 15,000. A second call, launched in 2003,
allowed wider participation but awarded slightly smaller grants; five winners received USD 12,000
each.
The ETI competition was open to ideas with the potential of creating sustainable employment. Ideas
could be presented by both new and established entrepreneurs. The objective was to contribute to the
competitiveness of Salvadoran SMEs through training, consulting services and financing for the
creation or expansion of dynamic businesses. The competition was open to all adults, both
Salvadoran and foreign nationals, who had a business idea for starting up an SME or for expanding
and/or diversifying an existing enterprise employing at least 100 workers. The participating
businesses were expected to reach USD 30,000 in sales in their first year of operation, and create at
least five new jobs in the first two years of operation.
Promotion of the entrepreneurial process involved five stages: motivation, training, identification of
opportunities, access to resources and follow-up. The ETI competition included four of the five
phases of the entrepreneurial process. The project’s intervention model was based on completing
three phases in succession over an eight-month period.
In terms of results and lessons learned, a look at the composition of the review panels responsible for
selecting projects suggests that the majority of members came from banks and financial institutions,
which was reflected in the results of the competition. The winning ideas were not necessarily the
most innovative, but deemed the most bankable. The absence of entrepreneurs on the review panel
tended to favour projects with low financial risks, relegating the innovative aspects of the projects.
Although the participants appreciated the quality and relevance of the training they received from the
ETI, some gaps were identified in topics related to the enterprise implementation stage; for example:
procedures and requirements for registering and formalizing an enterprise, procedures for staff
selection and hiring and the design of sales strategies. Insufficient networking between entrepreneurs
was also a major weakness of the ETI model. Similarly, female participation was notoriously low.
The programme’s credit component was also said to have a low degree of effectiveness. Of all the
finalists in the ETI competition, only 10 (33.3 per cent) submitted financing requests, of which only
six were approved for a total amount of USD 63,857 (average loan: USD 10,643). In addition, of the
six projects financed, only two established new enterprises. The perception was that the supply
characteristics of the credit and/or the systems for evaluating credit risk were disconnected from the
characteristics of the new entrepreneurs’ demand for financial resources.
28
Arguably, the ETI’s principal limitation from the standpoint of the entrepreneurs and organizers was
the lack of follow-up on the enterprises that won the competition and on those created on the basis of
their participation in the programme. The project failed to raise comprehensive awareness for the
entrepreneurial process and/or capitalizing on the experience of new ventures and to use this as a
feedback mechanism to improve the training provided to participants.
By 2008, four competitions had been held by the ETI. A total of 2,000 people had been trained, with
131 new businesses and about 760 new jobs created. Eventually, an alliance with the Inter-American
Development Bank supported the creation of training manuals and the obtaining of an ISO
9001:2000 quality certification in 2004, renewed in 2007 for another 3-year period (Ruiz Funes,
2008).
Source: Kantis et al. (2005) and Ruiz Funes (2008).
5. Labour market
Sector development plans are accompanied by human resource development strategies
which help identify the human resources needs and the organizations capable of
addressing those needs. In Morocco, the PNEI 2009-2015 identified concrete requirements in
terms of human resources to support the growth of six strategic industries. The goal was to train
about 220,000 people by 2015, in collaboration with the systems of public and private education
and training at different levels (Table 7 ).
Table 7 Morocco: Estimated labour requirements for the development of the six strategic
industries identified in the PNEI, accumulated over the period 2009-2015
Industry
Managers
Engineers
Technicians
Operators and related
Total
Off shoring
1,000
3,000
10,500
55,500*
70,000
Automotive
1,500
7,000
29,000
32,500
70,000
Aeronautic and spatial
300
1,900
3,000
9,800
15,000
Electronics
200
1,400
2,700
4,700
9,000
Textiles and leather
300
2,000
5,700
24,000
32,000
Agribusiness
500
500
8,500
14,500
24,000
Total
3,800
15,800
59,400
141,000
220,000
Notes: * For off shoring, the Assimilated corresponds to Administrative I and Administrative II.
Source: Taken from PNEI (2016).
29
Training plans were developed taking into account:
A list of training courses required to meet the priority needs of each industry
A variation of staff to be trained according to industry, profile, sector and year
A breakdown of staff in key training systems, either public or private.
To compensate for any inherent risk in the projected requirements, training plans were defined
with sufficient flexibility so as to adjust targets based on actual market demand for employment.
Additional measures included the creation of specialized institutes to attend to the needs of
specific industries. Many of these institutes are built and operated by private firms, for example,
the Centre for Training Professionals Automotive Tangier Mediterranean (CFMA/TM) under a
concession of Renault. Others benefited from existing infrastructure at local universities (PNEI,
2016).
Likewise, the Moroccan government has established a system of direct assistance, whereby the
government partially recovers the investment made by firms in the training of employees. This
is applicable for firms in offshoring, automotive, electronics and aeronautics and space. The
objective is to promote the hiring of trainees and the continuous development of employees; a
distinction is made between different levels, namely operators, technicians and
engineers/management or their counterparts across the distinct priority industries (PNEI, 2016).
Business incubators and entrepreneurship promotion are expected to contribute heavily to
employment creation; it is common to see such initiatives targeting specific societal
groups, for example, women and youth. The relevance of supporting business incubators in
low and lower-middle income countries cannot be understated. A survey by TEF-TAI (2015)
conducted among African entrepreneurs found that 82 per cent considered access to a business
start-up accelerator or resource centre was “very important” to establish a business.
In 2006, Morocco launched the Moukawalati programme, a national entrepreneurship
programme targeting unemployed young graduates. Under the responsibility of ANAPEC,
Moukawalati provides start-up training and a year’s worth of follow-up coaching for young
people interested in establishing a microenterprise. ANAPEC has created a network of 100
‘windows’ through partner banks to conduct business with Moukawalati participants, while the
government provides guarantees for up to 85 per cent of the loan values. The programme
delivered disappointing results during its first two years of operation. The Moukawalati
enterprises faced difficulties finding suitable business premises, and many potential
entrepreneurs failed to secure bank financing, notwithstanding support from special government
30
guarantees. The government introduced a revised programme in 2009, with adjusted targets for
firm creation (10,000 new enterprises, down one-third from the original target), and an
extension of the programme’s eligibility criteria to young people without degrees from
professional training institutions. The number of Moukawalati offices and trained advisors has
been expanded, and partner banks have agreed to provide stronger financing commitments to
participants (Stevenson, 2010).
The provision of specialized training addresses skill shortages of the industrial workforce.
Brixiova (2010) asserts that skill shortages, both on the part of workers and of entrepreneurs, are
important constraints for establishing new firms in Africa. Naudé (2010b) expands the
discussion to other developing countries, noting that market failures in labour and financial
markets lead to disconnect between highly skilled individuals and entrepreneurial opportunities.
According to Stevenson and St-Onge (2005), a 1999 baseline survey conducted among Kenyan
enterprises revealed that only 7 per cent of participating micro and small enterprises (MSEs) had
received any form of non-financial assistance in the previous four years. This figure contrasted
with the increasing number of formal and informal organizations in the country that offer non-
financial assistance by way of training in business skills and entrepreneurship, practical skills,
technical assistance and marketing support (Box 9 ).
Adopted in 2014, the Nigeria Industrial Revolution Plan (NIRP) identifies seven supporting
structures or enablers expected to help address systemic barriers to enhanced productivity and
industrialization. The enablers include infrastructure, innovation, investment climate, standards,
local patronage and skills better attuned to the needs of the industrial sector (
31
Box 10 ) (MITD, 2014).
Box 9 Milestones for training of engineers and technicians included in Kenya’s Vision 2030
Manufacturing Sector
In Kenya, policies to improve the base of skilled labour for industrial firms include promotion of on-
the-job training, increasing the private sector’s role in government training institutes, enhanced
government funding for training institutions, and offering postgraduate conversion courses to science
graduates to increase the number of technologists (Ronge and Nyangito, 2000). Entrepreneurial,
management and technical training is also important for enterprise development. Business start-up,
survival and growth training is offered by a wide array of Kenyan government agencies, private
consulting firms and NGOs, including the International Labour Office’s Start and Improve Your
Business training. Vision 2030 for the manufacturing sector proposes specific strategies to advance
towards the achievement of skills-related goals for industrialization (Ministry of Industrialization).
Facilitation of the setting up of Centres of Excellence that provide competency-based training
for engineers and technicians to meet the skills requirements of the manufacturing sector;
Identification of technology gaps within the training institutions;
Linking up training institutions with the manufacturing sector for technology updates;
Improving the curriculum of engineers and technicians by addressing the practical aspects of
training and the inclusion of entrepreneurship subjects. Diversifying the training in terms of
training places and including training exchange programmes with universities outside Kenya;
Providing incentives to industries to promote industrial research between universities and
industries for placement of engineering students in research fields and design;
Improving linkages between training institutions and industry;
Improving the level of funding for research and development in engineering through funds
mobilization.
Source: Ronge and Nyangito (2000) and Kenya’s Ministry of Industrialization.
32
Box 10 Nigeria’s approach to technical and vocational skills development aligned with industry
needs
With the adoption of the NIRP, Nigeria aims to address three structural gaps affecting skills
development in relation to industrial needs:
Policy gap – multiplicity of public and private sector players and programmes without adequate
connection with the labour market or industry needs;
Relevance gap – skills development misaligned with labour market needs or the skills
requirement of industry; and,
Financing gap – which constrains resource allocation for skills development in the public and
private sector.
In practice, the NIRP proposes a bottom-up approach to work with the private sector in each state to
determine the industrial skills needs and ensure that interventions are relevant for the industry.
Industrial skills councils will be created within each state and will consist of:
the largest industrialists in each state,
public sector agencies, and
development institutions.
Skills councils will evaluate the skills needed at a subnational level and report to a single National
Council on Industrial Skills Development. The objective is to provide training coupled with
opportunities (or jobs) to practice the acquired skills. NIRP expects to leverage technology to
consolidate information on trainees and reduce search costs for industrialists who are looking for
specific technical skillsets.
The Industrial Training Fund will be reformed to better suit the development of industrial skill
needs. Its curriculum will be streamlined to focus on fewer areas with increased depth, and to build
up its capacity to create links to available jobs and internships. Likewise, active promotion of the use
of private sector skills development centres under government sponsored programmes is proposed.
Source: MITD (2014).
33
The government has historically been the main source of jobs in Djibouti, which explains the
mismatch between young people’s skills and the needs of the labour market (AfDB et al., 2012).
To remedy this situation, the government is promoting the provision of training which
corresponds to the expectations of employers; additional initiatives include encouraging young
people to start their own businesses as a way to absorb unemployment and to stimulate PSD
(AfDB et al., 2012).
An example of a comprehensive programme to support young entrepreneurs is the Promise
Programme in Senegal, where the minimum cost of setting up a formal business is 255 per cent
of the annual average per capita income (Box 11 ).
Box 11 Senegal’s Synapse Centre – an example of a comprehensive training and financing
approach for young entrepreneurs
To reduce the cost of setting up a formal new business in Senegal, the government promoted the
creation of the Synapse Centre in 2003. The Centre provides potential young entrepreneurs with the
experience, support and advice they need to establish and run successful businesses and contribute to
overall economic growth and job creation. One of the Centre’s initiatives, the Promise Programme,
is a highly intensive 14-month youth entrepreneurship training programme that combines traditional
entrepreneurship theory with interactive case-based studies, practical experience, personal
development retreats and professional business consulting and mentoring.
Participants have access to incubator facilities via office space, monthly training workshops, group
learning, mentoring, and counselling (provided by some of the best-known companies in Senegal).
The centre also serves as a link between young entrepreneurs with the government’s National Fund
for Youth Employment (FNEJ), thereby giving them access to low-interest loans for their
businesses. The objective is to ensure that each participant establishes a successful business which,
in turn, gives something back to society. By 2008, 17 promising entrepreneurs had graduated from
the first class; nine young participants became entrepreneurs as founders of new companies and 35
business leaders were recruited to mentor young entrepreneurs. The nine successful entrepreneurs
created 137 jobs. Synapse’s annual budget of USD 80,000 results in one job created for every USD
584 spent. The experience of Synapse has shown that the increased self-confidence resulting from
the mentoring initiative enables entrepreneurs to expand their personal vision through a leadership
experience they otherwise might not have had.
Source: Taken and adapted from AfDB et al. (2012).
6. Capital markets
Governments have introduced simplified tax regimes to reduce the fiscal burden on
private firms and improve investment climate. In Egypt efforts to improve the institutional
34
environment for start-ups include the adoption of tax reforms to simplify the methods of
determining taxes levied from MSEs; at the same time, the Ministry of Finance has adopted
international standards in simplified accounting and reporting systems for small firms
(Stevenson, 2010).
Establishment of SME guarantee funds and/or SME development funds: According to
Stevenson (2010), several MENA countries have tried to address deficiencies in formal lending
markets by establishing various types of SME guarantee funds with different guarantee
amounts, ceilings, terms and conditions that are generally processed through commercial banks.
However, coverage of such instruments remains limited and with little substantial assessment of
their impacts on overall credit conditions for SMEs. SME development funds often target start-
ups and the upgrading of existing SMEs. Box 12 describes some funds available in the early
2000s to support the creation of SMEs in Morocco.
Box 12 Guarantee funds intended to improve access to bank credits by new SMEs in
Morocco
Guarantee fund for the modernization of enterprises (FOGAM): This fund provided guarantees
for up to 60 per cent of a commercial bank loan for the creation of a new firm. The investment value
before the loan was capped at MAD 40 million. The fund was managed by the Caisse Centrale de
Garantie (CCG).
Guarantee fund on loans for the creation of young enterprises. This fund targeted young
Moroccan entrepreneurs working as individuals or organized in an incorporated firm or cooperative.
The target population were those between 20-45 years of age on the condition they propose a viable
project to establish a new business. The guarantee covered up to 85 per cent of the principal and
normal interest or, if necessary, any default interests. The programmes that benefited from this
guarantee fund could be funded by commercial banks up to 90 per cent of the global cost. The fund
was managed by the Caisse Centrale de Garantie (CCG).
Guarantee fund on operating appropriations (OXYGENE). This fund guaranteed loans on
operating appropriations granted by commercial banks to SMEs in operation for six months or less
and with sales of up to MAD 15 million. The guarantee covered up to 60 per cent of the loan for the
first year and up to 50 per cent in case of renewal, with a minimum guarantee of MAD 1 million.
The fund was managed by Dar Ad Damane.
French guarantee fund for the benefit of Morocco: This fund was similar to FOGAM; it targeted
loans granted by commercial banks for the modernization of SMEs. The fund was managed by the
French Development Agency (AFD).
MEDA I guarantee fund (PAIGAM): This fund seeks to support the building of financial and
technical capacities of organizations providing guarantee funds, in this case, the CCG and Dar Ad
Damane. The guarantee covered up to 50 per cent of the loan, up to maximum of EUR 700,000.
Source: Taken and adapted and translated from MICMANE (2005).
35
Financing mechanisms linked to real estate development in the context of EPZ or other
industrial agglomerations. Box 3 and Box 17 discussed specific funding mechanisms
introduced by the Moroccan government as part of the NPEI 2009-2015. An additional
instrument specifically designed to support the development of Integrated Industrial Platforms
(P2I) (Box 17 ) is the Emerging Real Estate fund. It is an investment fund dedicated to real
estate and industrial services, primarily engaged in acquiring properties within P2i in order to
offer firms an interesting rental contract. The fund is operated by Attiajriwafa Bank, BMCE
Bank and the Banque Centrale Populaire, which have mobilized more than MAD 1 billion to
support this financing instrument. In addition to managing rental property databases available to
industry, the Emerging Real Estate fund also offers landscaping services (Moroccan Investment
Development Agency, 2016; PNEI, 2016).
Public-private partnerships (PPPs) intend to improve the investment climate and the ease
of doing business. In line with PSD goals, some governments have introduced specific
legislation to strengthen the legal frameworks around PPPs in investment and funding of
flagship industrialization programmes. This is the case in Kenya, for example. The new
industrial development plan identifies PPPs as a mechanism to underpin the development of
SEZs, Industrial and Science Parks, industrial clusters and incubators. Specific interventions
include Build-Operate-Transfer or Build-Own-Transfer (BOT) mechanisms, corporatization,
lease and/or management contracts and concessions (MIED, 2013).
In the case of Morocco, the PNEI 2009-2015 introduced a series of mechanisms to address the
financial needs of the six strategic industries identified by the Pact. All banks operating in the
country, members of the Groupement Professionnel des Banques du Maroc (GPBM), have
committed to offer funding mechanisms to investors operating in each of those industries
(PNEI, 2016). Three banks, Attijariwafa Bank, BMCE Bank and Banque Centrale Populaire,
pledged to raise a total of MAD 3 billion specifically for this purpose. In terms of banking
services, the preference is a “turnkey” approach to facilitate the installation and scalability of
operations. These three banks have developed a comprehensive range of banking services
‘packaged’ around three main objectives (PNEI, 2016):
To meet the financial needs of new firms (leasing, loans for onshore and offshore
investments, assistance/ advice);
To meet immediate operational needs (working capital, factoring, trade finance, capital
markets, workflow management and insurance);
36
To establish a suitable offer of financial services for employees of the new firms.
Markets for venture capital or risk capital remain underdeveloped, but progress is
ongoing. VC is equity financing provided by either venture capitalists or institutional investors,
generally in the early growth or expansion stages of a firm. Frequently, the aim is to take
advantage of recently created firms with proven high growth potential. The bulk of venture
capital comes from firms that run venture capital funds with participation of outside investors,
mainly institutional investors, who provide the majority of financing. The venture capital firm
provides professional managers for VC funds (UNCTAD, 2001).
Nigeria seems to be one of the most advanced countries as regards to policies intended to
promote the development of a local venture capital industry. According to Daramola (2012),
Nigeria has, at least on paper, attempted to build a policy system that closes the loop between
supply-oriented and demand-side policies. The system includes interventions that are directly
relevant for the creation of a segment of venture capitalists, while others are attuned to create
the necessary background conditions for the venture capital market. The author characterizes
supply side policies as government actions seeking to increase the benefits of private sector
participation in (new) technology-based firm creation. Those policies directly and indirectly
facilitate the creation of VC as well as the provision of finance for technology-based firms.
From a demand side perspective, some policies that are already in place, though their
implementation needs improvement, seek to create a pool of technology entrepreneurs and
suitable capital markets. Both supply and demand side policies related to VC markets in Nigeria
are presented in Table 8 .
Table 8 Nigeria: policies and programmes to support the creation of venture capital markets
Policies and pro
gra
mmes
VC-directed
po
li
c
y
VC-rela
t
ed
p
o
lic
y
Financial incentives (tax)
√
Venture Capital (Incentives) De
c
r
ee
No.89 1993
A
c
t
√
The
Small and Medium
E
n
t
e
rpris
e
s
Equity
In
v
e
s
t
me
n
t
Scheme
(SMEEIS)
2001
√
Science, Technology & Innovation Policy Draft (
2011
)
√
Entrepreneurship Development Syllabus
int
r
odu
c
ed at
primary and
seconda
r
y university (
200
6)
√
Technology incubation centres
√
Clusters (Otigba, Nnewi)
√
37
Support
agencies (SMEDAN, BOI, NOTAP)
√
Establishment of Intellectual Property and Technology Transfer
Offices
√
Stable
macroeconomic
en
v
i
r
o
n
m
ent
(1
999-da
te)
√
Export processing zones
√
Educational and resea
r
c
h organizations
√
Entrepreneurial
characteristics
of the diverse
tr
ibes in the
co
un
tr
y
√
Source: Taken from Daramola, (2012).
Morocco represents another case of a country that has managed to organize a fairly robust VC
market, at least in the MENA region. Stevenson (2010) cites the presence of 18-20 privately
owned VC companies and venture capital arms in most banks. Although growth in risk capital
strongly depends on investments by the European Investment Bank (Box 13 ), changes in
legislation introduced in 2006 improved the regulatory framework for VC and provided
incentives to VC funds investing in SMEs.
Box 13 Development of risk capital in Morocco
Risk capital markets began emerging in Morocco in the early 2000s. The industry integrated some
15 companies with a capital value of about MAD 1.5 billion. Government support was channelled
through the Caisse de Dépôt et de Gestion (CDG), setting the basis for the development of a number
of private funds including Accès Capital Atlantique, the seed capital fund SINDIBAD and the fund
Upline Technologies.
In the context of collaboration with the European Union, a line of risk capital for EUR 45 million
was established as part of the programme MEDA. This credit line, managed by the BEI, was created
as a line to support the operation of the different funds instituted by private investors.
Some challenges for the development of risk capital in the country include:
Lack of an adequate legal framework suitable for the development of the market for risk
capital. Development of regulations specific to the sector was ongoing in the early 2000s.
Public interventions tended to focus on supporting the development of existing risk capital
funds, with a much lower focus on the creation of new funds.
The difficulties faced by SMEs to comply with the prerequisites in terms of organization and
information about the firm, which result in a limited capacity to use the resources made
available from risk capital funds.
Source: Taken and adapted and translated from MICMANE (2005).
Leasing laws to promote a private sector SME leasing market are in effect in Egypt and Yemen.
Egypt has also launched second-tier stock markets to create opportunities for small and early-
stage growth companies to raise equity capital (Stevenson, 2010).
38
Tax incentives for young firms aim to stimulate investment in areas with a perceived
strong potential for growth and wealth creation. Chete et al. (2014) document the stratified
structure followed by Nigerian authorities to stimulate investments in manufacturing activities:
Firms with a turnover of <NGN 1 million are taxed at a lower rate of 20 per cent in the first
five years of operation;
Dividends from companies with a turnover of <NGN 1 million are not taxed in the first five
years of operation; and,
Dividends derived from the petro-chemical and liquefied natural gas sub-sector are tax
exempt.
The use of guarantee systems is seldom accompanied by the development of additional
financial instruments by private sector entities: Stevenson (2010) finds that banking systems
in MENA countries have a low disposition to target SMEs, while there are few financial
alternatives, especially for medium- and longer-term financing. In Morocco, for example, the
government funds loan guarantees to help SMEs access financing; eleven loan guarantee
schemes are operated by the CCG, a 100 per cent government-owned loan guarantee company
that provides 60 per cent to 85 per cent guarantees for bank loans extended to qualifying SMEs.
The author concludes that government-supported guarantee systems have had a limited impact
on changing the lending behaviour of banks, and seed and venture capital markets remain
underdeveloped in the region.
Microfinance and microcredit show different degrees of development; the dynamics of the
industry depend strongly on funding from external development partners. Stevenson
(2010) notes that Morocco has been building microfinance facilities since the 1990s. Regulation
and governance of the microfinance industry has been in place since the promulgation of the
Microfinance Law in 1999.
While Egypt has a good record as regards the use of microfinance institutions and programmes,
the development and availability of these services remain modest; the industry is also young or
nascent in Syria, Iraq and Sudan (Stevenson, 2010). Egypt, Morocco, Syria and Yemen have
already passed or drafted a microfinance law to establish a framework for the sustainable
operation of microfinance institutions and to regulate the industry. In Sudan, the government
has issued regulations requiring Sudanese banks to allocate at least 10 per cent of bank loans in
the form of microcredit. Stevenson (2010) further reports that in 2003, the United States Agency
for International Development (USAID) supported the creation of the Sudan Micro Finance
39
Institute, while the Sudan Microfinance Development Facility was established in collaboration
with the Bank of Sudan in 2008 with a capital amount of USD 20 million.
Financial mechanisms operated with support from development partners pursue the dual
goal of promoting firm creation and the formalization and growth of firms already
operating in informal markets. Mbithi and Mainga (2006) identified financial instruments in
Kenya operated by external organs, but made available to finance private sector agents in
various industries in the country. This is the case of the European Investment Bank facility
operated through all major commercial banks; some of the requirements to access the resources
include for the business to be registered with the Registrar of Companies. Additional
requirements are determined by the specific investment facility. The Central Bank of Kenya,
commercial banks and the Ministry of Trade and Industry contribute to the dissemination of
information about the programme.
In the case of Sudan, Stevenson (2010) reports that the Southern Sudan Ministry of Commerce
and Industry launched a US $20.2 million project in 2009 to stimulate PSD, financed jointly by
the government and the Multi-donor Trust Fund (MDTF) for Southern Sudan. A key element of
the strategy is “development of an Entrepreneurship Development Strategy to widely promote
entrepreneurship, capacity building on how to start businesses and comply with regulations,
business skills training, capacity building for business service providers and banks, and
community mobilization.” (Stevenson, 2010:269).
Krause and Kaufman (2011) highlight recent support provided by the World Bank to SME and
private sector development in Mozambique (Box 14 ).
Box 14 Recent World Bank support to SME and private sector development in Mozambique
The World Bank has been supporting SMEs and PSD in Mozambique through a suite of projects that
seek to address financial and technical constraints. The Project for Entrepreneurial Development
(PODE) has, through its technical learning component, helped hundreds of local SMEs, mostly
around the capital city, Maputo, through a matching-grant scheme that co-finances training sessions,
consultancies and export promotion activities, among others. A positive unintended outcome was an
increase in demand for BDS in Maputo and the establishment of new firms that offer such services.
The Mozambique Competitiveness and Private Sector Development Project (MCPSDP), launched in
2009, integrated various approaches, including selective industrial policy measures. The project’s
budget of USD 25 million was far more extensive than the Ministry for Industry and Trade’s (MIC)
budget. At the time of inception, it was uncertain if and how the project would cooperate with the
new SME institute, IPEME; however, there was a certain risk of duplicating functions in the area of
SME promotion. The project includes three components:
1) Developing the competitiveness of SMEs through the provision of loans and technical assistance.
40
2) Improving the general business environment and implementing the existing strategy for that
purpose.
3) Selective support for certain regions and industries, including the tourism industry in the province
of Inhambane, or a horticulture technological centre for the province of Nampula.
Both the PODE and the MCPSDP operate through a special unit linked to the MIC. The MCPSDP is
headed by the former National Director for Industry, who left the MIC to take up this post.
Source: Taken and adapted from Krause and Kaufman (2011).
The European Union is an important partner for the financing of seed capital needed for
initiatives in support of new firm creation south of the Mediterranean (Box 15 ).
Box 15 The seed capital, development and orientation fund: Faro
Faro, the seed capital, development and orientation fund, was launched on 27 May 2010 in the
context of the Union for the Mediterranean to boost the development of innovation on both sides of
the Mediterranean.
With a budget of EUR 1 million, the Faro fund enables European entrepreneurs to evaluate the
feasibility of innovative projects undertaken in collaboration with partners from the South of the
Mediterranean. Each project backed by Faro is allocated a subsidy of maximum EUR 20,000, to
finance up to 50 per cent of the total costs involved.
The subsidy allocated enables promoters of small innovative projects to conduct feasibility studies
for their partnership project from various points of view: technical, financial, legal, commercial or
managerial. The Faro fund links the French Development Agency with the “Caisse des Dépôts” and
OSEO-BDPME; major objectives include encouraging the creation of business and employment
generation in the region though North-South collaboration.
Source: Taken from the Moroccan Investment Development Agency (2016).
Regulatory reforms on the introduction of special financial incentives to attract foreign
investors into strategic industries. The Ethiopian government has actively promoted the
development of the horticulture and floriculture industry, including specifically designed
incentive programmes to attract foreign investors into this industry ( Embassy of Ethiopia in
China, 2016). Currently, 25 foreign and domestic investors have already started construction
while 20 of them started production and the export of roses to European markets. Foreign
investors are based in China, Europe and the Middle East. The Ethiopian government has
implemented a series of reforms to facilitate FDI and to encourage foreign investment, including
a revised investment law (Box 16 ).
41
Box 16 The role of government incentives for and reform of investment law to attract FDI into the
Ethiopian horticulture and floriculture industry
Ethiopia’s industrial development strategy encourages investors engaged in the production and export of
agricultural products, especially in floriculture, horticulture, pulses and oilseeds. The government has
developed preferential financial instruments to attract and support investors involved in the production
and export of these products; loans are available to cover up to 70 per cent of investments. This special
loan is provided through the DBE. The bank has the following credit policy:
Fixed interest rate at 7.5 per cent per annum. However, this can vary from time to time.
Bank clients are granted the maximum grace period, namely the period up to the commencement of
operations. The maximum allowable grace period is fixed at three years.
All fixed assets of the project are held as collateral or as loan security.
A debt/ equity ratio requirement of 70/ 30 applies for newly launched projects. For ongoing projects
that include the expansion of existing projects, the ratio decreases to 60/ 40.
The loan repayment period is determined on the basis of profitability and debt servicing capacity of
the borrowing firm, as well as the economic life of major investment items, with a maximum
repayment period of 10 years.
A foreign investor can invest on his/ her own or in partnership with domestic investors. The minimum
capital required from a foreign investor is USD 100,000 in cash and/ or in kind as an initial investment
capital per project to start a business. The minimum capital for a foreign investor who joins a domestic
investor or company for a joint investment is USD 60,000.
Investment law guarantees capital repatriation and remittance of dividends. It also provides an investment
guarantee.
To encourage private investment and attract FDI and technology transfer into Ethiopia, some of the major
incentives given to investors (both domestic and foreign) engaged in new enterprises or in the expansion
into areas that qualify for investment incentives include:
Full exemption (100 per cent) from the payment of import customs duties and other taxes levied on
imports; investors can import all investment capital goods, such as plant machinery, equipment, etc.,
as well as spare parts worth up to 15 per cent of the value of the imported investment capital goods,
provided that the goods are not produced locally in comparable quantity, quality and price.
Investment capital goods imported without the payment of import customs duties and other taxes
levied on imports may be transferred to another investor enjoying similar privileges.
42
Exemptions from customs duties or other taxes levied on imports are granted for raw materials needed
for the production of export goods.
Ethiopian products and services destined for export are exempt from the payment of any export tax
and other taxes levied on exports.
Any income derived from an approved new manufacturing and agro-industry investment or an
investment made in agriculture shall be exempt from the payment of income tax for varying periods of
time, depending on the area of investment selected, the expected volume of exports and the location in
which the investment is undertaken.
Any remittance made by a foreign investor from the proceeds of the sale or transfer of shares of assets
upon liquidation or winding up of an enterprise is exempt from the payment of any tax.
Business enterprises that suffer losses during the tax holiday period can carry forward such losses for
half of the income tax exemption period following the expiry of the exemption period.
Source: Taken and adapted from the Embassy of Ethiopia in China’s website.
Funds and grants for entrepreneurship must be carefully crafted to avoid incentives for
rent-seeking behaviours: AfDB et al. (2012) illustrate this point based on the case of Benin.
The Fonds National de Promotion de l’Entreprise et de l’Emploi des Jeunes (FNPEEJ), created
in 2007, encourages the entrepreneurial spirit of young people by financing business creation,
but because of the non-repayment by a large number of beneficiaries (up to 81 per cent), the
deficit had reached more than CFA 1.6 billion by September 2011. AfDB et al. (2012) warn that
in the long run, such high rates of non-repayment can create the impression that funding
provided for young entrepreneurs is free and not loaned.
Noman (2015) argues that capture by politically powerful rent-seekers can partly explain the
difficulties experienced with nationalized commercial banks in Pakistan, particularly in the
1980s and 1990s. The author compares the Pakistani financial system during this period with
that of the 1950s and 1960s, when two development finance institutions (DFIs), the Pakistan
Industrial Credit and Investment Corporation (PICIC) and the Industrial Development Bank of
Pakistan (IDBP), played a central role in the country’s rapid industrialization. Both these
institutions contributed to the creation of a class of industrial capitalists/ entrepreneurs and to
raising investment levels through long-term loans at moderate-to-low interest rates.
Accordingly, this mechanism helped socialize the risk of investment and promote savings “in
the “miracle” economies of East Asia, because the powerful incentive to invest also served to
enhance corporate savings.” (p. 41) Although the author urges caution in any attempt at reviving
DFIs in the volatile context of current Pakistan, he emphasizes that interesting lessons can be
drawn from the recent experience of the DBE and its role in supporting the emergence of the
local leather and floriculture industries (see Box 16 ).
43
7. Land market
7.1. Creation of land markets
Property titling aims to enable the use of land as collateral to obtain formal bank credit,
particularly for SMEs; the evidence is inconclusive on whether this is indeed happening.
The functioning of land markets in low and lower-middle income countries suffers from factors
such as inadequate access to land, which is governed by traditional practice to assign property
rights, rigid urban land tenure and deficiencies in property registration. The result is high entry
barriers to formal markets, particularly for urban SMEs, and to start-up businesses, as well as to
attracting FDI (Kolavalli et al., 2011). Initiatives to reform land ownership intend to address
some of these deficiencies and to facilitate the development of land for industrial use.
Côte d’Ivoire, Kenya, Liberia and other Southern African countries have been undertaking
efforts to improve access to land through the provision of formal titles (World Bank et al.,
2015). In addition to securing ownership to the land, titling is expected to stimulate the
emergence of land markets and increase incentives for long-term investments, including in
industrial activities (Altenburg and von Drachenfels, 2008). However, based on a study of a
sample of firms in four African countries, Biggs and Shah (2006) suggest that property titling is
no guarantee to access supplier credit or bank loans at the start-up phase (Table 9 );
whereas 48.4 per cent of firms in Zambia and 43.9 per cent of firms in Zimbabwe declared to
own land, the share of firms with access to external loans at start-up was around 10 per cent to
11 per cent only.
Table 9 Financial characteristics of a sample of firms in four African countries
Kenya
Tanzania
Zambia
Zimbabwe
Receive supplier credit
28.2
12.0
19.5
67.4
Avg. years of supplier
relations
8.0
7.3
7.8
11.8
Have title to property
35.8
36.7
48.4
43.9
External loans at start-up
25.5
8.9
11.9
10.6
Source: Taken from Biggs and Shah (2006:10).
7.2. Promotion of clusters, industrial parks and other forms of geographical and/or
industrial agglomerations
The development of industrial clusters and other agglomerations seeks to improve land
market conditions and incentives for firm growth. Policies that underpin cluster development
44
have some established tradition in developing countries. Based on the African experience,
Mccormick (1999) identified different types of clusters depending on both their internal
structure and level of industrialization. Some clusters serve to lay the groundwork for
industrialization by improving access to markets and offering an environment propitious for
inter-firm collaboration. Other types of clusters are “industrializing” in the sense that they have
begun a process of specialization and differentiation that leads to greater efficiency. “Still others
have diversified their size structure and interfirm linkages in such a way that they have been
able to tap wider national and global markets.” (Mccormick, 1999:1532). The author observes
differentiated, sometimes negative, effects of clusters on labour market pooling and
intermediate input availabilities. The generation of extensive spillovers to the rest of the
economy and the development of complex industrial clusters requires additional efforts to
generate local product content, improve the functioning of labour markets and contract
enforcement, among other factors (Mccormick, 1999).
In Kenya, cluster policies include the promotion of small producer associations in the context of
groundwork enterprise clusters (Mccormick, 1999). An example is the Kamukunji’s Jua Kali
association, which integrates local metalwork artisans; the association owes its existence to
government policy originating in the late 1980s. Such organizations serve as a link between
government and informal market producers for the implementation of programmes aimed at
small-scale entrepreneurs as well as advocates for policy change.
The Kenyan government expects to support around 47 small and medium size industry (SMI)
parks—one in each county—with a view to promoting triple-helix type collaborations
(government–private sector–university); this should facilitate the growth and development of
knowledge and technology-based enterprises (Ministry of Industrialization, 2013).
Export processing zones (EPZ): Bigsten and Söderbom (2005) assert that because of the
limited size of domestic markets for African manufacturing products, the boost for
industrialization should be generated through exports. In line with this observation, low and
lower-middle income countries actively promote the emergence of EPZs, or special economic
zones (SEZ), industrial parks and related firm agglomerations, to create spaces for industrial
development, investments in industry and to boost non-agricultural employment (Oskarsson and
Nielsen, 2014). In general, EPZs are duty-free enclaves operating under relaxed and business-
friendly policy regimes. EPZ promotion includes expeditious processes for land acquisition,
special economic incentives for the settlement or resettlement of firms and labour. The evidence
shows some mixed results for these initiatives.
45
In Morocco, the creation of new technology parks and offshoring zones has helped
accommodate new factories through FDI inflows (Stevenson, 2010). In Zambia, spatial
inclusion is addressed in the revised Sixth National Development Plan, with the added feature of
an industrial policy that proposes the creation of multi-facility economic zones as an instrument
to create business opportunities in urban agglomerations and to attract FDI flows (Rasmussen,
2012).
Tanzania has had an active EPZ policy for several years, including the adoption of an EPZ Act
in March 2003 (Wangwe et al., 2014). In the context of the Sustainable Industrial Development
Policy (SIDP) for the period 1996-2020, EPZs are expected to attract and promote investments
for export-led industrialization, to increase foreign exchange earnings, create and increase
employment opportunities, attract and encourage technology transfer and promote the
processing of local raw materials for export. The Act included a 10-year exemption on corporate
taxes, remission from customs duties, VAT and other taxes on raw materials and capital goods
related to production in the EPZ, authorization to sell 20 per cent of produced goods on the
domestic market, access to the export guarantee scheme and unconditional transfer of profits,
dividends and loyalties, among other incentives.
The creation of industrial parks, technoparks, science parks and other types of
agglomerations of firms or industries is pervasive. According to Stevenson (2010), several
MENA countries have promoted technology parks and innovation centres, as well as elaborate
R&D and commercialization support infrastructure. These include technology parks and
technopoles in Morocco (Box 17 ), or the Smart Village initiative in Egypt. The latter
consists of a network of Technology Transfer and Innovation Centres (TTICs), R&D Centres of
Excellence, business and technology incubators and a Technology Development Fund that
provides risk capital to technology and ICT start-ups, specifically technology and higher value-
added start-ups (Stevenson, 2010).
RGC (2015) notes that recent industrialization efforts in Cambodia include reorienting the
development of industrial zones to ensure the provision of adequate clustering services,
economic linkages and efficient transport and logistics services, electricity supply and other
supporting infrastructure. The region of Phnom Penh and other areas along the Thai and
Vietnamese borders have been identified as potential zones for manufacturing development and
for linking to regional production chains. Additional industrial corridors include the
Sihanoukville-Phnom Penh for manufacturing export zones, the Kompong Cham province-
North-West industrial corridor for agricultural processing zones, and Siem Reap for handicraft
production to support the tourism industry.
46
In Kenya, Ronge and Nyangito (2000) find that the implementation of the new industrial policy
(see Box 6 ) included an implicit notion of industrial dispersion during the first phase of the
strategy; this is reflected in the emphasis placed on supporting resource-based, labour-intensive
small- and medium-scale industries. According to the authors, unlike in the past when diverse
instruments and incentives were used to achieve this policy objective, government intervention
is now restricted to the provision of infrastructure in major urban centres. To reduce industry
start-up costs and partly influence the location of industry, authorities expected to strengthen
their capacity to provide basic infrastructure, to set aside land for industrial use as well as for the
construction of industrial parks (Ronge and Nyangito, 2000).
Box 17 Integrated industrial platforms (P2i) in Morocco
The PNEI has introduced an ambitious suite of programmes to assist in developing a diversified
supply of land for industrial use. The Integrated industrial Platforms programme (P2i for its acronym
in French) constitutes the flagship element in this strategy. Moreover, they are considered the core
element of the PNEI, as they offer industrial land adjusted to the needs of firms working in priority
industries. P2i supports three types of platforms:
GP P2i: open to all industries, they can combine several areas;
Sector P2i: dedicated to a specific industry, but may include special areas related to the main
industry (electronics embedded in a district P2I automotive);
P2i Districts Regional / National: general areas reserved for industrial players from the same
region of a foreign country.
P2i aims to progressively establish a network of 16 P2is, including by upgrading some already
existing areas. Each zone integrates real estate services, supply logistics, BDS, connectivity logistics,
one-stop-shops and free economic zone status.
Two other programmes run in parallel:
Zone of economic activities: This programme aims to mobilize various stakeholders located in
areas with industrial potential in target regions; and
Rehabilitation of industrial areas: The creation of new areas of economic activity is
accompanied by rehabilitation of several industrial zones.
Both programmes seek to:
Contribute to the development of supply of land through the conditioning and/or rehabilitation of
specific areas of economic activity;
Support the provision of quality services to contractors;
Assist in the optimal exploitation of industrial opportunities at the regional level;
Help capture regional spillovers from P2i initiatives.
Source: PNEI (2016).
47
Innovative agglomeration schemes are being explored in Nigeria to promote the creation of new
firms and incentivize the formalization of informal firms (
Box 18 ).
Box 18 Promotion of enterprise zones in Nigeria
Nigeria has recently adopted an approach of supporting the creation of enterprise zones in the form
of platforms of between 5 hectares and 30 hectares, targeted at incorporating the informal sector into
the organized private sector. This is expected to empower farmers and SMEs, and enable them to
efficiently and conveniently feed their products into the value chain of large-scale industries. The
enterprise zones will be located in both state capitals and local government areas, and will
accommodate mechanics, block makers, small-scale furniture manufacturers, timber merchants,
welders/metal fabricators, garment makers, and other categories of artisans and vocational workers
who constitute over 70 per cent of Nigeria’s private sector. Skills acquisition/training centres will
also be located in each enterprise zone for skills upgrading, while the private sector will assume
responsibility in managing the enterprise zones.
Industrial parks will be created for large manufacturing companies to ensure high value addition in
the production of finished products or raw materials. Expected to cover areas of not less than 3,050
km2, the parks will be located in accordance with the comparative and competitive advantage of the
distinct geographical zones throughout the country.
The parks will include incubator facilities in the form of start-up centres for new and inexperienced
entrepreneurs, graduates of tertiary institutions, investors and persons involved in vocational training
who wish to set up their own businesses. Prospective start-up companies will be equipped with
entrepreneurial skills and enterprise resources to nurture them from formation to maturity.
Some limitations to be mentioned during the implementation of the strategy include the need for
infrastructure and leveraging, and ensuring private sector collaboration.
Source: Chete et al. (2014).
Historically, the Ghanaian government has focused on the development of large-scale import-
substitution industries to meet growing domestic demand; the lack of government support to
48
small businesses has hampered their innovation abilities and development prospects (Robson et
al., 2009). Recently, support to industrial parks has addressed some of these structural
challenges (Box 19 ).
Box 19 Combining appropriate investment conditions and cluster synergies in industrial zones in
Ghana
The GTZ-sponsored Programme for Sustainable Economic Development in Ghana has been
supporting the establishment of industrial zones with access to modern energy services and BDS in
the Brong Ahafo region since 2006. Three factors make these industrial zones attractive for
businesses:
-Access to affordable land, as it is difficult for businesses to expand their premises in overcrowded
urban areas due to high costs and land tenure problems. Recently graduated apprentices are often
unable to find land to open their own enterprises.
-Reliable access to electricity, which has been identified as a major constraint for PSD in Ghana.
Currently, enterprises are scattered around residential areas, causing electricity network overloads,
ecological hazards and nuisances for neighbours.
-Provision of business services. Apart from improved access to electricity, other business services
are being offered by business associations and other service providers to enterprises in the clustered
environment.
One industrial zone has been established, for another four, the procurement process has started and
four more are planned in different district capitals in the Brong Ahafo region. Access to these zones
is granted to formal and informal enterprises, regardless of size, ranging from start-ups to medium
companies with high growth potential. Currently, the majority of applicants for land in the industrial
zones are MSMEs engaged in car repair, woodwork, metalwork and agro-processing. The
management model for the industrial zones is adapted to local conditions and consists of a PPP
between business associations and District Assemblies.
Source: Taken from Altenburg and von Drachenfels, (2008).
49
Industrial zones, EPZ and similar mechanisms to help attract FDI. The formation of SEZ
seeks to lure FDI investors into starting businesses in specific sectors. In East Asia, industrial
zones and EPZ have been instrumental for foreign investors to overcome bureaucratic red tape
and enhance access to land and infrastructure; they have played important roles in the early
stages of opening up the economy, but have become steadily less important over time. A
significant contribution to industrialization has been their use as models for dealing with
industrial investors whose practices then spread to </