IFC's Survey of Belarussian SMEs Reveals Barriers to Business Development, Outlines Areas for Reform

/ Minsk, Belarus, March 6, 2006-The second annual survey of the business climate in Belarus revealed that it takes, on average, 118 days and $976 to register a business and obtain all necessary operating permits. Complex regulatory procedures, including tax administration, business registration, business inspections, and obtaining operating permits impede private sector development of business in Belarus.

These are some key findings of an SME survey conducted by IFC with financial support from the Swedish International Development and Cooperation Agency (Sida). The survey polled 1,200 Belarussian companies and individual entrepreneurs operating in the small and medium enterprise sector across the country. The IFC survey gives the country's policy makers an entrepreneur's view on regulatory procedures as well as recommendations on how to address regulatory constrains to SME development.

The latest report shows that Belarus made some progress in reducing some regulatory barriers, namely those caused by business inspections. In 2004, the total share of SMEs inspected fell to 66% (from 90% in 2003), while the average duration of an inspection was halved. Yet despite such welcome developments, inspections in Belarus remain some of the most time-consuming the CIS region: the average firm spends over a month being inspected, and undergoes 10 different inspections annually. For comparison, the average number of annual inspections per firm in Ukraine is 9, 3 in Georgia, and 1 in Uzbekistan.

The Belarus SME survey identifies regulatory procedures that hinder the development of the SME sector. These include:

- Permits: Two-thirds of respondents who obtained permits in 2004 described this process as either complex or exceedingly complex. On average, an SME needs five permits before it can begin operations, while it takes 2 calendar months and $230 to obtain each of these permits.

- Registration. Two-thirds of SMEs that registered in 2004 described the procedure as complex. On average, it takes 3 months and $750 to register an SME in Belarus. Entrepreneurs cited the key problems as involvement of an excessive number of state agencies in the registration process and the significant number of documents required.

- Licensing. The list of activities requiring licensing remains lengthy: it includes 49 types of businesses and 350 subtypes. Some 70% of applicants find licensing procedures complex.

The IFC study and recommendations on how to improve the business climate were welcomed by the government, particularly the Ministry of Economy, which has invited IFC to collaborate further in this area. As a result of interaction in 2005, the government started work on permit system reform in cooperation with IFC. In addition, IFC-drafted proposals on how to streamline the permit system were included in the Economic Ministry's working paper on "Support for Entrepreneurship in 2006-2010." IFC also cooperates with the State Control Committee to boost the efficiency of inspections and with the Ministry of Justice to improve business registration procedures.

The International Finance Corporation The International Finance Corporation is the private sector arm of the World Bank Group and is headquartered in Washington, D.C. IFC coordinates its activities with the other institutions of the World Bank Group but is legally and financially independent. Its 178 member countries provide its share capital and collectively determine its policies.

The mission of IFC is to promote sustainable private sector investment in developing and transition countries, helping to reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses. From its founding in 1956 through FY05, IFC has committed more than $49 billion of its own funds and arranged $24 billion in syndications for 3,319 companies in 140 developing countries. IFC's worldwide committed portfolio as of FY05 was $19.3 billion for its own account and $5.3 billion held for participants in loan syndications.