Global Workshop on Development Impact Evaluation in Finance and Private Sector Rio de Janeiro, June 6-10, 2011 INCENTIVES FOR ENTERPRISES TO BECOME FORMAL IN MALAWI: GOVERNMENT PROJECT AND IMPACT EVALUATION Lynda Ndovie, BESTAP Malawi Francisco Campos, World Bank, Africa Region Gender Practice Case Study

Outline  Background  Intervention by Ministry of Industry and Trade under BESTAP  What is the impact evaluation about? What questions does it answer?  Impact evaluation design  Results from the pilot

Background  Informal sector represents 93% of the non-farm small scale enterprises in Malawi.  The process of business registration is centralized in one city and manual.  It takes 39 days to become formal according to the 2011 Doing Business Report (18 days in Zambia).  (1) Business registration cost $1.3 for a sole trader or partnership and $8 for a limited liability but there are hidden costs like transport.  Becoming formal also involves (2) registering for taxes and (3) paying licenses at the City Assembly.  These 3 institutions have systems that do not speak with each other.

3 main steps in becoming formal (1) Business registration (2) Registration for taxes(3) City assembly license

Intervention by BESTAP  The Ministry launched the Business Environment Strengthening Technical Assistance Project (BESTAP) to address some of the constraints faced by businesses.  Major objective: To improve ease of doing business processes in Malawi.  It has 4 main components: 1. Strengthening property rights institutions 2. Strengthening private sector development institutions 3. Promoting access to finance 4. Capacity building and Implementation support  One of the subcomponents under the first component is to improve the Business Registration Services at the Registrar’s General.

Initiative at Registrar’s General  The main focus of the project is computerisation of the business registry including :  System diagnostics and specification  Information technology investment for registering a business  Computerization of procedures, data processing and archiving  Restructuring of the registries’ operations and procedures  Staff training

Situation before

Progress so far  Preservation in electronic format of all manual historical records was completed by December  Procurement of hardware and software for the information system is being reviewed.  Technical staff at the registry have undergone attachments to the Registers of Scotland, Zambian Registry and the South African Business Registry.  The revised Business Registration Bill, which accomodates for the automatic system, has been submitted to parliament.

Digitisation Process

The Impact Evaluation  The major objective of the IE is to assess whether becoming formal improves enterprise performance.  Specifically the IE will answer the following questions: 1. Does the benefits of business registration outweigh the costs? 2. Are there differences between firms that only register their business at the Registrar’s General versus firms that become fully formal? 3. Do both male and female-owned enterprises gain equally from registration? 4. Are the effects of registration heterogeneous on other dimensions? 5. Does helping to separate business from household money complement formality value?

Treatment interventions Two Interventions: 1. Offer business registration (and for a subset of firms registration for taxes) including help to filling-in forms, paying fee, taking forms to DRG, bringing business registration certificate back to entrepreneur. 2. Training on the benefits of separating business and household money coupled with an incentive to open a bank account in the name of the business.

Sampling Sample of eligible businesses (using a screening criteria) in Lilongwe and Blantyre (3,000) Costless Registration at DRG (1,200) Costless Registration at DRG and TPIN (600) Control group (1,200) Training and incentive to separate business money (600) Business registration INTERVENTION Separate business and HH money No intervention (600) Training and incentive to separate business money (300) No intervention (300) Training and incentive to separate business money (600) No intervention (600) (1)(2)(3)(4)(5)(6)

IE intervention pilot Eligible Not eligible Sampled for pilot No BRC + MRA BRC No Yes Still deciding Yes No Number of enterprises in each step of the IE pilot

Global Workshop on Development Impact Evaluation in Finance and Private Sector Rio de Janeiro, June 6-10, 2011 ZIKOMO!!!