Step 4: Assessing the policy, legal, and regulatory framework

The objective of this assessment is to identify the strengths and weaknesses of the policy, legal, and regulatory framework, comparing it against existing benchmarks of good practice. The criteria provided in this guide should be used with flexibility to accommodate specific national concerns and circumstances. In some cases, previous studies may have provided detailed assessments on certain policy areas, and it is important to include this existing information in the assessment.
The main sources for assessment are:

  • Your analysis of policy, legal and regulatory documents (as described below);
  • other reviews of policy, legal and regulatory documents;
  • consultations and interviews with key informants (e.g., government authorities, other business associations, etc.); see the annexes for an extensive list of questions that can be used to guide you in these interviews;
  • Any other studies that highlight the effect of policies, laws, and regulations on enterprises.

There are three areas of concern that you should focus on when assessing the policy and legal framework in which small enterprises start-up and operate:

  • Assessing the design of policies, laws, and regulations;
  • assessing the implementation of policies, laws and regulations;
  • assessing the influence of policies, laws and regulations;

These areas of concern are described under the heading below.

Assessing the design of policies, laws, and regulations

When assessing the ways in which government has designed the policies, laws and regulations that you have mapped, you should consider the following:

Clarity: This refers to clarity of purpose, implementation, and responsibility. It is important that all relevant parties understand policies, laws, and regulations and that these parties know their rights and responsibilities within these policies, laws, and regulations.
When assessing a policy or law in terms of clarity for the enterprise sector you may consider the following questions:

  • What is the precise purpose of the policy, law, or regulation?
  • Can small enterprise owners and managers easily understand policies, laws, and regulations?, or are they contradictory and complex?
  • Are there duplications between different regulations?
  • Do administrative procedures serve an identifiable purpose?
  • Do the policies, laws, and regulations apply a consistent definition with regard to “micro”, “small”, “medium” and “large” enterprises? Or is there a multiplicity of definitions, resulting in confusion and fragmentation?

Understanding of small enterprises’ role and differential treatment by size class: This refers to the importance of government recognizing the value of the small enterprise sector and the specific needs, capabilities, opportunities, and constraints that small enterprises experience. It is especially important that the government recognize that small enterprises face very different influences on their well-being than medium and large enterprises. The policies, laws, and regulations of government should reflect this recognition and demonstrate that government understands the role that small enterprises can play in the national economy and in the achievement of national development goals.
When assessing a policy or law in terms of the recognition it gives to the special roles and circumstances of the small enterprises sector, you may consider the following questions:

  • Do policies, laws, and regulations provide for a differential treatment of enterprises by size class? (This can, for example, be recognizing the specific needs of small enterprises, granting specific incentives or exemptions to small enterprises, or excluding small enterprises from certain benefits and incentives.)
  • Are small enterprise policies based on a clear understanding of the (current and potential) role of small enterprises in the economy?
  • Do current policies, laws, and regulations appear to reflect current conditions? Or are they outdated remnants from the past?
  • Was the EO consulted in the design of this policy or law? How did this consultation occur? Did the consultation focus on the situation of small enterprises?

Compliance steps: While this issue is connected with the implementation of policies, laws, and regulations (indeed there should always be a close connection between design and implementation), it is important to assess the requirements that are placed upon small enterprises in the design of policies, laws, and regulations. Most policies, laws, and regulations contain an element of rights (the protection or support that a subject enjoys) coupled with an element of responsibility (the requirements that are placed on the subject), it is therefore useful to assess the extent to which the policies, laws, and regulations balance these.

When assessing a policy or law in terms of the steps that small enterprises must follow to comply with the policy or laws, you may consider asking: What are the main steps and requirements that small enterprises have to follow, either to comply with the regulations, or to obtain access to certain resources or benefits?

Assessing the implementation of policies, laws and regulations

Well-designed policies, laws, and regulations can fail or prove to be less effective if they are not properly implemented. While good policies, laws and regulations will be designed with effective implementation in mind, this does not always occur. Thus, it is important to assess policies, laws, and regulations in terms of the extent to which they have been implemented.

You should assess the implementation of policies, laws, and regulations by focusing on the following elements:

Transparency: This refers to the public processes of implementation and the decision-making functions of government institutions that implement policies, laws, and regulations. It is important that these public institutions undertake their activities in a publicly accountable and open manner, and that policies, laws and regulations are also implemented in such a way.
When assessing a policy or law in terms of transparency you may consider the following questions:

  • Are administrative decisions made on the basis of objective criteria?
  • Are they arbitrary? Do they lack transparency? Is corruption widespread?

Information on policies, laws and regulations: This refers to the ways in which enterprises obtain information on the policies, laws, and regulations that affect them, especially newly-introduced or recently amended policies, laws and regulations. If enterprises and other relevant parties are not aware of their rights and responsibilities with respect to these policies, laws, and regulations, then it is likely that these governmental instruments will not be properly implemented.

When assessing a policy or law in terms of the information that is provided to small enterprises and other key parties, you may consider the following questions:

  • Is information on policies, laws, and regulations readily available to small enterprise owners, managers and workers, or is it difficult to access even for specialists and lawyers?
  • Have the stakeholders been informed of the existence and content of policies, laws, and regulations?
  • Have special efforts been made in this regard (e.g. information campaigns, centralized information in one single government office)?
  • Is the information dissemination approach sensitive to the differing ways in which female and male business owners access information?

Costs and benefits of compliance: This refers to the balance of advantages and disadvantages that an enterprise might face as a result of the policy or law. A small enterprise might decide to avoid complying to a law because it does not offer enough advantages, or because there is no penalty (e.g. fine, imprisonment, business closure) that will result from non-compliance. In some cases, the financial cost of complying with a law (e.g. business registration fee) may be too high for the enterprise owner/manager to afford. Costs may be direct, such as the cost of fees to be paid, or indirect, such as the time taken to comply with a specific regulation. In assessing costs you are not required to undertake an in-depth analysis of the cost of compliance. Rather, you may want to refer to some key features, such as whether or not there are variations in fees based on enterprise size, or whether there are significant hidden costs of compliance. Remember, the view of government officials may be very different to those of small enterprise owners and managers.

Coverage of policies, laws, and regulations: This refers to the affect that the policy and law has on the total population of enterprises. For example, rural enterprises may be less subjected to the requirement of the law simply because they are in rural areas and are less visible. In other cases, some policies, laws, and regulations may not cover the informal sector or unregistered business because they are not officially recognized by government.
When assessing a policy or law in terms of the coverage of specific policies, laws, and regulations you may consider the following questions:

  • Is there any evidence of compliance with laws and regulations (e.g., the share of registered vs. unregistered enterprises)? Does this appear to vary according to industrial subsectors, the actors involved, or specific target groups, such as women-owned enterprises?
  • To what extent have specific small enterprise policies been implemented?

Assessing the influence of policies, laws, and regulations

Your assessment should also combine the two elements described above – design and implementation – to assess the overall influence that a specific policy or law has on employment in the small enterprise sector.

The term “influence” is deliberately used here instead of “impact”. This is because it is very difficult to measure the impact of any single policy or law on enterprises. Instead, it is likely to be possible to determine whether or not a policy or law has had some kind of influence, whether positive, negative, or otherwise, on the enterprise sector.

One issue to look out for is the problems that might arise from policies and laws that treat small enterprises differently from larger enterprises. While small enterprise promotion policies and laws that offer special treatment for smaller firms may be introduced to help small enterprises, they can also distort markets and create growth traps that produce disincentives for enterprise growth.

Recognizing the influence of gender

In general, gender mainstreaming should be an institutionalized strategy that aims to systematically address gender inequalities in legislation, policies, programmes and budgets at all stages of the policy and programming cycle. The objective is to ensure that women and men have equal opportunities and rights, as beneficiaries, participants and decision-makers. To bring gender issues into the mainstream in all policies, legislation, and programmes requires a five-pronged approach:

  • carrying out a gender analysis
  • carrying out gender-specific strategies or interventions
  • starting a process of institutional change in procedures and in institutional processes
  • involving women in consultation processes to give them a voice
  • carrying out gender budgeting and auditing.

In the matter of the EO assessment of the policy, legal and regulatory framework, the EO should pay attention to the extent to which gender mainstreaming is being integrated at the design and implementation stages, as well as the ways in which the policy and legal framework impacts enterprises owned by women versus men.

There are four areas of examination that may help you to assess this.

These are as follows:

Structural features: These are the explicit characteristics of policies, laws, and regulations which can treat female-owned enterprises and male-owned enterprises differently. Examples of such structural biases include policies, laws, and regulations that prohibit women from owning property in their own right.

Behavioural or attitudinal features: Bias in the treatment of women and men, and female-owned enterprises and male-owned enterprises, may be removed from policies, laws, and regulations, but may be found to persist in the implementation of these policies, laws, and regulations because of behavioural or attitudinal reasons.

Impact variations: While it may not be possible to immediately identify structural or behavioural elements of gender bias, you can determine the effect of these by the impact they have on enterprise development. You may find, for example, a high proportion of female-owned enterprises in the micro-enterprise sector and far less in small and medium-sized enterprises. Alternatively, you might find that women participate less in small enterprise associations than men do; or that the growth of female-owned enterprises is constrained by greater restrictions on the access women have to finance. Such findings will help you to trace back these experiences to determine whether their source is structural or behavioural.

Promotional policies, laws, and regulations: Promotional policies, laws, and regulations may be formulated by governments to redress the impact of other policies, laws, and regulations, or to achieve a specified social and economic outcome. This may include, for example, policies that promote female-owned enterprises.

 

Please see the following list (Box 6) for the issues to be addressed when assessing the policy, legal,and regulatory framework.

Box 6: Issues for the assessment of the policy and legal framework
You may use the headlines of this table to structure your analysis of each policy, law, and regulation that you are reviewing.

DESIGN

Clarity

Can small enterprise owners, managers, and workers easily understand policies, laws, and regulations?
Or are they contradictory and complex?
Are there duplications between different regulations?
Do administrative procedures serve an identifiable purpose?
Do the policies, laws and regulations apply a consistent definition with regard to “micro”, “small”, “medium” and “large” enterprises?
Or are there a multiplicity of definitions, resulting in confusion or fragmentation?

Understanding of enterprise role and differential treatment by size class

Do policies, laws and regulations provide for a differential treatment of enterprises by size class? (This can for example be recognizing the specific needs of small enterprises, granting specific incentives or exemptions to small enterprises, or excluding small enterprises from certain benefits and incentives.)
Are small enterprise policies based on a clear understanding of the (current and potential) role of small enterprises in the economy?
Do current policies, laws and regulations appear to reflect current conditions? Or are they outdated remnants from the past?

Steps of compliance

What are the main steps and requirements that small enterprises have to follow, either to comply with the regulations or to obtain access to certain resources or benefits?
Gender
Are there any signs that these policies, laws, and regulations address men and women differently?
Is there any difference in the way female-owned enterprises and male-owned enterprises are treated?
Are their any special policies that support the development of female-owned enterprises?

IMPLEMENTATION

Transparency

Are administrative decisions made on the basis of objective criteria?
Are they arbitrary?
Lacking transparency?
Is corruption widespread?

Information

Is information on policies, laws, and regulations readily available to small enterprise owners, managers, and workers, or is it difficult to access even for specialists and lawyers?
Have the stakeholders been informed of the existence and content of policies, laws and regulations?
Have special efforts been made in this regard (e.g., information campaigns, centralized information in one single government office)?

Costs and benefits of compliance

These may be direct, such as the cost of fees to be paid, or indirect, such as the time taken to comply with a specific regulation. You are not required to undertake an in-depth analysis of the cost of compliance. Rather, you may want to refer to some key features, such as whether or not there are variations in fees based on enterprise size, or whether there are significant hidden costs of compliance. Remember, the view of government officials may be diametrically opposite to those of small enterprise owners and managers.

Coverage

To what extent have specific small enterprise policies been implemented?
Is there any evidence on compliance with laws and regulations (e.g. share of registered vs. unregistered small enterprises)?
Does this appear to vary according to industrial subsectors, the actors involved, or specific target groups?

INFLUENCE

Is there any evidence of the influence of policies, laws, and regulations on small enterprises?
Is this influence different for men and women? (Please specify if you refer to information gathered through interviews with key informants, data analysis, or previous studies).