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This study attempts to estimate tax compliance costs and assess views of taxpayers on aspects of the tax system in Ethiopia. The study uses evidence mainly from a survey of both formal and informal businesses in Addis Ababa and four major cities (Adama, Hawassa, Mekele, and Bahir Dar) in the four largest regional states. The survey covered 1003 formal businesses and 499 informal businesses. Survey questionnaires were informed by the results of four focus group discussions conducted in Addis Ababa and Adama. The findings of the study are expected to offer tax policy makers and tax administrators an opportunity to pinpoint specific problems to help reduce the cost of complying with tax policies and procedures, thus improving the revenue performance and also the efficiency and business-friendliness of the tax system. The report is organized in four sections. The first part presents an overview of the Ethiopian tax system and recent reform initiatives; second section discusses the research objectives and the methods employed. Section three presents results of the survey while section four presents conclusions and recommendations.

Employing a unique dataset that covers households from six West African capitals, this paper provides new evidence on the demand for informal sector products and services. We first investigate whether demand linkages exist between formal and informal products and distribution channels, and whether there is an overlapping customer base, which would imply that both formal sector wage earners and informal workers buy both formal and informal products using both formal and informal distribution channels. In a second step, we estimate demand elasticities based on Engel curves. We find a strongly overlapping customer base and strong demand-side linkages between the formal and informal sector, with the exception that informal goods are hardly bought through formal distribution channels. The estimated demand elasticities tend to show that rising incomes are associated with a lower propensity to consume informal sector goods and to use informal distribution channels. We therefore conclude that the informal sector in West Africa is likely to be constrained from the demand side.

Growing research and policy interest focuses on the misallocation of output and factors of production in developing economies. This paper considers the possible misallocation of financial loans. Using plant-level data on the organized and unorganized sectors, the paper describes the temporal, geographic, and industry distributions of financial loans. The focus of the analysis is the hypothesis that land misallocation might be an important determinant of financial misallocation (for example, because of the role of land as collateral against loans). Using district-industry variations, the analysis finds evidence to support this hypothesis, although it does not find a total reduction in the intensity of financial loans or those being given to new entrants. The analysis also considers differences by gender of business owners and workers in firms. Although potential early gaps for businesses with substantial female employment have disappeared in the organized sector, a sizeable and persistent gap remains in the unorganized sector.

The empirical literature on institutions and development has been challenged on grounds of reverse causality, measurement error in institutional indicators, and heterogeneity. This paper uses firm-level data across countries to confront these challenges. Instead of analyzing ultimate outcomes, such as income levels where institutional quality is likely endogenous, the focus is on firm-level external finance. Moreover, institutions are “unbundled” to explore how various types of institutions affect external finance differently. The paper documents that micro firms have significantly less access to external finance than small and medium firms. General financial development and contracting institutions that facilitate transactions between private parties exert little effect, on average, on firms’ access to external finance. In contrast, property rights institutions that constrain political and economic elites exhibit stronger positive association with access to external finance. The analysis finds evidence of attenuation bias associated with error in measuring institutions. For leveling the playing field between elite and non-elite firms (as proxied by firm size) in their access to external finance, property rights institutions also figure more prominently—with an important exception for the information environment, a component of contracting institutions. The results indicate that a specific channel through which development is affected more by property rights institutions rather than contracting institutions is external financing for firms.

Financial infrastructure is the underlying foundation of a country’s financial system. It is comprised of all institutions, information, technologies, rules, and standards which enable financial intermediation. The quality of a country’s financial infrastructure determines the efficiency of intermediation, the ability of lenders to evaluate risk and of borrowers to obtain credit, insurance, and other financial products at competitive terms. This report covers two dimensions of Jamaica’s financial infrastructure: 1) payments, remittances, and securities settlement systems, and; 2) credit reporting systems. This technical note does not provide a detailed assessment of individual payments system in the form of a Report on Observance of Standards and Codes (ROSC), but uses the framework of international standards for carrying out a detailed analysis of the existing systems in Jamaica, including the Committee on Payment and Settlement Systems (CPSS) and International Organization of Securities Commissions (IOSCO) Principles for Financial Markets Infrastructure (PFMIs), the CPSS General Guidance for National Payment System Development, the CPSS-World Bank General Principles on International Remittance Services (GPs), the World Bank General Principles for credit reporting and related methodologies. The information used in the assessment includes relevant national laws, regulations, rules and procedures governing the systems and other available material.

This Fifth Edition of the Uganda Economic Update presents evidence that if the urbanization process is well managed, it has the potential to stimulate economic growth and to provide productive jobs for a greater proportion of Uganda s young and rapidly expanding population. In many countries across the world, the growth of cities has stimulated the establishment and expansion of productive businesses by reducing the distance between suppliers and customers. The growth of cities has also facilitated provision of social services and infrastructure through economies of scale. These positive effects from urbanization are already visible in Uganda since the poverty rate is seven percentage points lower in urban areas than in rural areas. Most of the recent job creation is found in cities, and social indicators are also better in urban areas, especially in education and health. This report conveys the following key messages: (1) over the past 12 years, the number of people living in Uganda s urban areas has been increasing by an average of 300,000 people per year, (2) during the past few decades, similarly rapid rates of urbanization have been recorded in many emerging countries, (3) as is the case in many other developing countries, the prospects of good jobs, higher incomes and better living conditions in the cities continue to attract Ugandans from rural areas, (4) currently, the opportunity presents itself for Uganda to leverage urbanization to benefit a large proportion of the population, and (5) through the implementation of smart policies, Uganda can ensure that its cities are both competitive and livable.

This assessment of accounting and auditing requirements and practices in Former Yugoslav Republic (FYR) Macedonia is part of a joint initiative implemented by the World Bank and the International Monetary Fund to prepare reports on the observance of standards and codes (ROSC). The assessment focuses on the strengths and weaknesses of the accounting and auditing (A and A) environment that influences the quality of corporate financial reporting, and includes a review of both statutory requirements and actual practice. The assessment also considers the extent of compliance with European Union (EU) requirements under the acquis communautaire. The strategic objective of this report is to support government efforts to improve the business climate in FYR Macedonia, and achieve the country s overarching goal of EU integration. The three essential pillars of institutional infrastructure are: (i) adequate and appropriate legal requirements, (ii) capacity sufficient to implement those requirements, and (iii) effective enforcement mechanisms. This report updates the first ROSC A and A prepared in 2003. This report provides policy recommendations to improve financial transparency in the domestic corporate sector and to strengthen accounting and audit practices in line with international benchmarks and EU Directives.

Job creation and economic growth through private sector development have become primary areas of focus for policy makers around the world in the aftermath of the global financial crisis. Recent evidence points to the importance of small and medium enterprises (SMEs) in providing employment across countries. In addition to employing the largest number of people in aggregate, SMEs generate the most new jobs. But SMEs also face many challenges in day-to-day operations and to grow. This note is a report back on the state of the credit gap for MSMEs with this new and updated data, while providing additional focus on the sizable informal enterprise sector in the developing world. In addition, this report examines various operational challenges that small and informal firms face, and some formalization obstacles they often cite as the primary reasons for not registering their business. A framework to differentiate the informal sector is offered, with the intention of segmenting the vast landscape of informal firms some of which exist today due to opportunistic behavior, while others are just trying to survive and to better design specific interventions depending on the stage of development and the willingness of the firm to register its business. The rest of this report is organized as follows. Section I focuses on the credit gap for formal MSMEs, and offers some innovative models and interventions that can be used to more fully meet the financial and non-financial needs of formal MSMEs. Section II focuses exclusively on informal enterprises, and goes beyond the access to finance paradigm, describing the operational challenges faced by informal firms, reviewing the experiments that have tried to induce higher rates of formalization, and looking at a series of private sector models that if combined, could more fully meet the needs of informal firms.

The importance of small and medium enterprises (SMEs) to economic development and job creation is increasingly recognized across the world. With an expected 58 percent of gross value added in 2012, SMEs are perceived to be the backbone of the economy especially within the European Union (EU). Although they faced particularly challenging economic conditions in 2011-12, SMEs within the EU still account for more than 98 percent of all enterprises and 67 percent of total employment. For such businesses, access to finance is a key factor for business start-up, development, survival, and growth. In September-October 2012, the World Bank Centre for financial reporting reform (CFRR) surveyed Austrian banks with a view to understanding the role played by financial information and audits in lending decisions. Respondents to the survey represent approximately one third of the sector based on total assets. The survey also assessed how banks measure the quality of the financial information they receive as part of a loan application. The purpose of this report is to inform the accounting and auditing profession, policy makers, and SMEs and their representative institutions about banks’ requirements and expectations regarding the scope of financial information provided by SMEs when applying for a credit.

Micro and Small Enterprises (MSEs) in developing countries are typically considered to be severely credit constrained. Additionally, high business risks may partly explain why capital stocks of MSEs remain low. This article analyzes the determinants of capital stocks of MSEs in poor economies focusing on credit constraints and risk. The analysis is based on a unique, albeit cross sectional but backward looking, micro data set on MSEs covering the economic capitals of seven West-African countries. The main result is that capital market imperfections indeed seem to explain an important part of the variation in capital stocks in the early lifetime of MSEs. Furthermore, the analyses show that risk plays a key role for capital accumulation. Risk-averse individuals seem to adjust their initially low capital stocks upwards when enterprises grow older. MSEs in risky activities owned by wealthy individuals even seem to over-invest when they start their business and adjust capital stocks downwards subsequently. As other firms simultaneously suffer from capital shortages, such behavior may imply large inefficiencies.

The Arab Spring in the Middle East and North Africa (MENA) region has brought to the forefront key challenges: the need to create job opportunities, equal access, a level playing field, transparency and accountability, and a fair and competitive environment. Crony capitalism, the privileged access of certain elites to favorable legal and regulatory treatment, access to markets, and the coincidence of political and economic power, was a major concern contributing to the uprising. Many saw privilege and corruption as the source of unemployment and inequality, effectively raising barriers to entry and growth for the majority of entrepreneurs. At the same time, practices such as connected lending and preferential land allocations, contributed to poor performance of key institutions, underpinning the market economy. It is critical for the MENA countries to achieve the aspirations of their people and attain sustainable and inclusive development by expanding private-led employment and creating entrepreneurship opportunities. This report assesses the supply and demand of financial services to small and medium enterprises (SMEs) in the MENA region, as well as the regulatory, institutional and policy environment that determines the cost, risk, and scale of SME finance. Emerging and promising SME finance models for banks, investors, government and regulators are outlined. These could significantly improve the outreach, viability, risk management, and development impacts of SME finance in the MENA region. SMEs need access to longer term credit products and equity, in addition to working capital loans and trade finance. They also need payment and card services, deposit facilities, liquidity management, risk management tools and insurance. The principal role of the state is as an enabler and regulator, providing the financial infrastructure, and legal and policy frameworks that financial institutions need to be able to meet the range of SME financial needs profitably. All this will contribute to attaining a more sustainable and inclusive system that can play a more important role in economic growth, and the regions prosperity.

(english) This paper investigates the dynamics of the informal sector in Madagascar during a period of fragile growth. Overall, the behavior of informal firms in terms of earnings, employment and capital accumulation points to a degree of heterogeneity which goes beyond a simple dualistic model and even a more refined model that would distinguish between an upper entrepreneurial and a lower subsistence tier within the informal sector. However, in line with the dualistic model, the informal sector indeed fulfils a labor absorbing function in times of crisis. During the growth period we see capital accumulation in most of the sectors and lots of evidence that households expand their activities. However, this happens mainly through the creation of new firms instead of the expansion of existing ones, which is consistent with much higher returns at very low levels of capital. More rapid expansion can be observed in sectors that operate with lower capital intensity, which is also consistent with risk or credit constraints as major deterrents to expansion. While there is some indication that total factor productivity increased over time, returns to capital and labor where not higher at the end of the observation period than at the beginning. Returns are also rather low at high levels of capital. These findings point to a limited growth potential of the informal sector as a whole. The heterogeneity in capital returns hints at large inefficiencies in allocating capital across informal firms. _________________________________ (français) Cet article examine la dynamique du secteur informel à Madagascar pendant une période de croissance fragile. Le comportement des firmes informelles en termes de revenus, d’emploi et d’accumulation du capital suggère un degré d’hétérogénéité allant au-delà du modèle dualiste classique, et même d’un modèle plus fin distinguant, au sein du secteur informel, un segment entrepreneurial et un segment de subsistance. Cependant, conformément au modèle dualiste, le secteur informel a absorbé le surplus de travail en temps de crise. Pendant la période de croissance, on constate une accumulation de capital dans la plupart des secteurs d’activité et une expansion des activités des ménages. Ceci se traduit pourtant principalement par la création de nouvelles firmes plutôt que par la croissance de firmes existantes, en lien avec des rendements beaucoup plus élevés à des faibles niveaux de capital. Une expansion plus rapide peut être observée dans les secteurs à faible intensité capitalistique, ce qui tend également à confirmer que le risque et les contraintes de crédit sont des obstacles à l’expansion. Alors que les résultats montrent que la productivité totale des facteurs a augmenté, les rendements du capital et du travail ne sont pas plus élevés à la fin de la période étudiée qu’au début. Les rendements sont également plutôt faibles à des niveaux élevés de capital. Ces résultats indiquent un potentiel de croissance globalement limité des firmes informelles. Enfin, l’hétérogénéité des rendements du capital plaide en faveur d’une allocation sous-optimale du capital dans le secteur informel.

Nonfarm sector development in rural Ethiopia is central to generating employment and income and thereby reducing poverty. The improved investment climate could facilitate investments in farm and nonfarm sectors by contributing directly and indirectly to the generation of additional employment for women and men. Ethiopia Industrial Development Strategy 2003 involved efforts to create an enabling environment for the private sector to be a driving force for economic development. The sectoral focus of the strategy is on the development of agro-based industries and on strengthening nonfarm sector. The sustainable support system for rural women entrepreneurs is based on five main components: (i) women's economic empowerment, (ii) market development, (iii) access to markets, (iv) business management support services, and (v) access to credit. Necessary conditions to support nonfarm economic activities, such as physical market development, feeder roads, and transport, will also benefit agriculture and create a virtuous circle of increasing farm and nonfarm income. Women are more likely to be involved in and benefit from nonfarm enterprise activities. Although the system proposed could be targeted at men and women, women could be the main beneficiaries of the support system. This sustainable system is new and innovative in directly supporting the rural poor and women by building the capacity of entrepreneurs and supporting institutions linked to the existing projects. This system may derive maximum synergy effects by integrating with the Agricultural Growth Project (AGP) and the Household Assets Building Program (HABP) of the Productive Safety Nets Project (PSNP) in a complementary relationship.

Social reproduction is the highest for self-employed as shown by an extensive literature from developed and developing countries. Very few studies however document the reason for this high intergenerational correlation of the self-employed status. The rare studies that have been done concern the US and show that children of self-employed benefit from an advantage when they are themselves self-employed. The purpose of this paper is to test if the second-generation of self-employed has an advantage related to the first-generation in the African context. It aims at highlighting the debate on firms heterogeneity in the informal sector, and seeks to contribute to understand the intergenerational transmission of inequalities. Using 1-2-3 surveys collected in the commercial capitals of seven West African countries in 2001-2002, this paper shows that the second-generation of informal selfemployed does not have better outcomes than the first one, except when they choose a familial tradition in the same sector of activity. Thus, in the African context, having a self-employed father does not provide any advantage in terms of profit or sales and is not sufficient for the transmission of valuable skills. On the other hand, informal entrepreneurs who have chosen a specific enterprise based on familial tradition have a competitive advantage. Their competitive advantage is partly explained by the transmission of enterprise-specific human capital, acquired through experiences in the same type of activity and by the transmission of social capital. _________________________________ Très peu d’études documentent les raisons de la très forte reproduction sociale observée parmi les entrepreneurs, aussi bien dans les pays développés que dans les pays en développement. Les rares études, portant sur les E.U, montrent que les enfants d’entrepreneurs ont de meilleures performances quand ils sont eux-mêmes entrepreneurs que les enfants de salariés. Cet article teste si ce résultat se vérifie dans le contexte du secteur informel ouest-africain et cherche à en comprendre les raisons. Il vise par conséquent à éclairer le débat portant sur l’hétérogénéité des entreprises informelles, en identifiant des facteurs de succès, mais il cherche aussi à mieux comprendre les mécanismes à l’origine de la transmission intergénérationnelles des inégalités en Afrique. En se basant sur les enquêtes 1-2-3 collectées dans sept capitale ouest-africaines, cet article montre que la seconde génération d’entrepreneurs informels ne bénéficient pas d’un avantage comparatif, sauf s’ils bénéficient d’une tradition familiale dans leur secteur d’activité. Ainsi, dans le contexte ouest-africain, avoir un père entrepreneur ne suffit pas à la transmission de compétences managériales. En revanche, les entrepreneurs qui ont choisi leur secteur d’activité par tradition familiale ont un avantage qui s’explique principalement par la transmission de compétences spécifiques au secteur d’activité et par la transmission d’un capital social.

This paper analyses the impact of a microfinance institution (MFI) serving small informal enterprises in Antananarivo (Madagascar). The methodology consists of comparing over time the situation of a representative sample of clients' enterprises with a control group, constructed in an almost experimental way through a standard propensity-score matching technique. Overall, the results indicate a positive impact of the project. Taken as a snapshot, the evaluations successively conducted in 2001 and 2004 indicate that the clients' enterprises recorded better average performance than enterprises without funding. With a dynamic perspective however, the results are more nuanced. If the positive effect of the project is clear during growth phases, its effect during economic recessions appears less certain.

East Java is the second largest contributor to Indonesia's economy with a growth rate similar to national level and other major provinces in Java. Nevertheless, for a province that is expected to be a major economic center in the country, there has been very little change in the region's economic structure in the past 10 years. Since 1995, the share of industry and agriculture in the economy is almost unchanged. Furthermore, the growth in both of these two sectors has been low, despite the fact that industry was once the main driver of the East Java economy. This report analyzing the economic conditions of East Java shows that the province offer many economic advantages for investors, such as its geographical location, adequate credit facilities, an abundant and competitively priced workforce, conducive security conditions, and an overall robust macroeconomic condition. The report also finds a number of constraints that, if prioritized and effectively addressed, could boost East java's growth rate to higher level. The main binding constraints to growth in East Java are infrastructure, particularly related to business operations, and the business climate.

Small and medium enterprises (SMEs) play a major role in economic development, particularly in emerging countries. Access to finance remains a key constraint to SME development in emerging economies. Closing the credit gap for formal SMEs will be less daunting than for informal SMEs. The SME finance gap is the result of a mismatch between the needs of the small firms and the supply of financial services, which typically are easier for larger firms to access. Deficiencies in the enabling environment and residual market failures have motivated government interventions to foster SME access to financing. The stocktaking exercise confirms the rise in various parts of the world of specific business models aimed at providing financial services to SMEs in a cost-effective manner. Effective SME financing models can be implemented in different country and market environments, but greater outreach is achieved in the most developed environments for the financial sector. Although SME banking and microfinance models are successfully being rolled out in an increasing number of countries and regions, equity financing remains a challenge in developing economies. The role of international finance institutions (IFIs) and development finance institutions (DFIs) to foster SME financing in the developing world has been significant so far. Increasing access to finance can only be successful if qualitative aspects are taken into account.

Since 1947, the Vietnam Social Security (VSS) has provided social insurance to public servants and armed forces personnel in Vietnam. In 1995, the Government merged the social insurance unit of the Ministry of labour, invalids and social affairs with that of the Vietnam General Confederation of labor. At the same time the system became mandatory to the employees of the newly developing private sector. The consolidated system is publicly managed by the VSS administration. VSS collects contributions and pay social insurance benefits (in case of sickness and sick leaves, maternity and family planning related leaves, work injury and professional disease, survivorship and to people that reached pension ages). This paper investigates this issue by reviewing the characteristics of employment in Vietnam. It concludes that the risk that social coverage remains limited for many years is high and, presents accordingly some policy options to augment VSS's chances to reach universal coverage in the future.