1 1 Enterprise Development World Business Council for Sustainable Development Geneva, September 2007 Doing Business with the World - The new role of corporate leadership in global development

 The global view: SME contribution to employment and GDP  The persistence of the informal economy Overview

3 3 The global view: SME contribution to employment and GDP SME contribution to employment and GDP (median values) For government, SMEs contribute to wealth creation and generate tax revenues. SMEs constitute an important source of local supply and service provision to larger corporations. SMEs have extensive local knowledge of resources, supply patterns and purchasing trends. In society, they are an important source of employment. In business, SMEs represent an important source of innovation. Source: World Bank

4 4 The persistence of the informal economy Average size of the informal economy, in % of official GDP Source: Schneider, Friedrich "Size and Measurement of the Informal Economy in 100 Countries around the world. " Working Paper Center for Research in Economics, Management and the Arts, Johannes Kepler University of Linz. Informality is a matter of degree In developing countries, the size of the informal economy has been increasing as a percentage of official GDP. Many SMEs choose to remain informal because the costs and procedural burden of joining the formal economy outweigh the benefits.

 What are the needs?  Starting a business in developing countries  What are the challenges? Needs & Challenges

6 6 What are the needs? If many entrepreneurs dip into their personal savings when financing a business, what are the implications when personal savings are scarce? Greater actual risk? Fewer business opportunities? Less investment for future growth? Slower overall business growth? When income does not fully cover even daily necessities, everything else becomes a luxury. Thus there are a great many things that the poor cannot afford to buy. Tools, materials, and upkeep for income-generating assets like transportation or farm equipment are all expenses that are routinely left out of the family budget. -World Resources Institute (2005). "Life on a Dollar a Day" Small and medium enterprises firms have more financing barriers than large firms. 1 Higher interest rates Less access to long-term loans, foreign banks, non-equity, and export finance More bank paperwork

7 7 Starting a business in developing countries Number of days to start a business Source: World Bank Doing Business. "Starting a business is a leap of faith even in the best of circumstances. Governments should encourage the daring." World Bank Doing Business. Ease of doing business rankings vs. number of SMEs Source: IFC Micro, Small and Medium Enterprises: A Collection of Published Data. Business registration for SMEs needs to be quick, easy and of reasonable cost.

8 8 What are the challenges?  Burdensome regulatory frameworks  Lack of tax incentives and subsidies  Absence of investor-friendly environment  Lack of access to finance  Lack of capacity-building programs and inadequate provision of vocational training

 What can business do to enable enterprise development?  Key messages  WBCSD Resources Opportunities

10 What can business do to enable enterprise development? Build supply chain capacity Technology transfers, investment in infrastructure Strengthen local distribution networks Improve standards and environmental performance Provide access to financial services

11 Key messages For governments, an effective policy framework for SMEs can: Create a healthier and more diverse economy Create employment opportunities and increase tax revenues Formalize SME business activity Contribute to social stability Encourage environmental stewardship For business, investing in SMEs can: Lead to the creation of effective business partners Strengthen local supply chain capacity Reduce costs by sourcing locally and lowering transportation costs Strengthen distribution networks and open up new markets Strengthen the business license to operate

12 WBCSD Resources Promoting Small and Medium Enterprises for Sustainable Development This Issue Brief, published by the WBCSD in collaboration with SNV Netherlands Development Organization, explains how governments can help alleviate poverty by focusing on SMEs and how larger corporations can help themselves by including SMEs in their value chains. It describes some of the comparative advantages of SMEs and the challenges they face in developing countries. WBCSD – SNV Alliance Website The WBCSD and SNV Netherlands Development Organization have a strategic Alliance to work together to address sustainable poverty alleviation through the involvement of the private sector. The first phase of this new Alliance is focused on Latin America, and aims at catalyzing, developing, executing and scaling up inclusive business opportunities, that is, sustainable business that benefits low- income communities. For more information on the Alliance's work, see

13 World Business Council for Sustainable Development