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Domestic Resource Mobilization for micro and small enterprises in Bolivia

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Micro and Small Enterprises (MSE) are very important in Bolivia, eight out of ten employments are created by this sector. Most of MSEs work in an informal economy, having strong impact in job quality, tax contribution and weak national services delivered to this companies. Aimed to public authorities and cooperation agencies, the proposal explore some financial mechanism and tools that can allow incorporate this sector to formal economy, improving productivity, work conditions and cluster integration. Bolivian Economic and Social Development Plan 2015-2020 is specific in looking for a strong MSE participation in the national effort aimed to diversify the productive matrix

Publicada em: Economia e finanças
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Domestic Resource Mobilization for micro and small enterprises in Bolivia

  1. 1. Domestic Resource Mobilization for Micro and Small Enterprises (MSE) in Bolivia José Luis Pereira Ossio
  2. 2. Table of contents 1. Country context 2. The MSE problem 3. MSE perspective in National Economic and Social Development Plan 4. Policies and tools proposals
  3. 3. Country context
  4. 4. Bolivia’s general information Surface área: 1’098’581 KM2 Population: 10’000’000 Officially considered a lower Middle Income Country Doing Bussiness Rank: 157/189 countries
  5. 5. Bolivia Key Development Indicators Units 2011 2012 2013 Latin America & Caribbean 2013 Lower middle income 2013 Geography Surface area thousand sq. km 1098.58 1098.58 1098.58 19461.73 21590.48 Population Population, ages 15-64 in thousands 6155.21 6291.35 6427.95 386631.87 1629311.84 Population growth % 1.64 1.65 1.65 1.14 1.49 Urban population % of total population 66.86 67.28 67.70 78.97 38.84 Economic development GNI, Atlas method current USD in millions 20265.90 23298.80 27214.31 5607105.89 5310498.10 GNI per capita, Atlas method current USD 1960.00 2220.00 2550.00 9535.58 2073.53 GNI per capita, PPP current international $ 5200.00 5410.00 5750.00 14204.14 5965.94 GDP growth % 5.17 5.18 6.78 2.47 4.96 GDP per capita growth % 3.46 3.45 5.03 1.32 3.41 Poverty Poverty headcount ratio at $1.25 a day, PPP % of population 6.97 7.98 n/a n/a n/a Poverty headcount ratio at $2 a day, PPP % of population 11.95 12.72 n/a n/a n/a Life expectancy at birth, total years 66.63 66.93 n/a n/a n/a Infant mortality rate per 1,000 live births 33.40 32.20 31.20 15.50 44.00 Child malnutrition % of children under 5 n/a n/a n/a n/a 24.38 Education Adult literacy, male % of ages 15 and older 96.60 97.11 n/a n/a n/a Adult literacy, female % of ages 15 and older 88.08 91.87 n/a n/a n/a Gross primary enrollment, male % of population of official age group 95.16 n/a n/a n/a n/a Gross primary enrollment, female % of population of official age group 93.72 n/a n/a n/a n/a Access to resources Access to an improved water source % of population 88.00 88.10 n/a n/a n/a Access to improved sanitation facilities % of population 46.30 46.40 n/a n/a n/a Source: www.aidflows, World Bank 2015
  6. 6. Bolivia key economic indicators Source: Bolivia Systematic Country Diagnosis, World Bank Group
  7. 7. Micro and Small Entreprises (MSE)
  8. 8. Relevance of MSE in Bolivia Sector/Number Large enterprises Small and Medium Micro enterprises Total % Productive 921 13.851 213.584 228.356 32,0% Services 753 20.292 169.046 190.091 26,6% Commerce 635 22.588 271.786 295.009 41,3% Total 2.309 56.731 654.416 713.456 % 0,3% 8,0% 91,7% 100%
  9. 9. Large enterprises 0% Small and Medium 8% Micro enterprises 92% Composition by size Large enterprises Small and Medium Micro enterprises Relevance of MSE in Bolivia
  10. 10. MSE relevance in Bolivia 92% of the entreprise’s universe are microenterprises 83% of jobs are provided by microenterprises 63% of the population work in the informal economy
  11. 11. MSE characterization in Bolivia Micro enterprises •1-10 employees •Assets less than USD 60’000 •Annual sales less than USD 100’000 Small enterprises •11-30 employees •Assets less tan USD 200’000 •Annual sales less tan USD USD 350’000
  12. 12. MSE obstacles in development context Specific sector policies Job’s quality Economic integration • Weak cluster integration • Absence of infrastructure • Poor work conditions • Without access to social and economic benefits • Limited Company registration and statistics • Poor tax contribution
  13. 13. MSE main obstacles and bottlenecks Limited Access to technology Limited Access to financing Work force’s low level of skills Limited access to attractive markets and little added value in products
  14. 14. Some highlights of MSE in National Economic and Social Development Plan 2015-2020 Source: Plan de Desarrollo Económico y Social en el Marco del Desarrollo Integral para Vivir Bien (2015 – 2020)
  15. 15. Transformation of the National Productive matrix Community Economic, and Social Productive Model Hydrocarbons Minning Electricity Environmental Resources Industry, manufacture and crafts Turism Agriculture development Housing Trade, transport service and other services Strategic sectors generating surpluses Income and Employment generating sectors Industrialization National social bonds Poverty reduction Income redistribution: social programs STATE REDISTIBUTIONS SYSTEM SURPLUSES
  16. 16. Selection of sectoral goals Economic and Social Development Plan, Goals 2020 Base line 2014 50% of the banking portfolio is dedicated to productive micro, small and medium enterprises 34% At least 40% of Foreign direct investment (FDI) is aimed to the diversification of productive matrix, FDI reach at least 8.1 of GDP 6.4% of GDP Micro and Small Enterprise Gross Production Value reach USD 3’644 MM USD 2’275 MM Medium, Small and Micro Enterprises share at least 10% of export’s value. 3% MSE increase their access to Technology (10%), Financing (35%) and Training (15%) Actual: Technology (6.1% ), Financing (23.5) and Training (8.2)
  17. 17. Draft of financial solutions through Domestic Resource Mobilization
  18. 18. The formalization road, a tough challenge…. Increase Tax revenu • Policies aimed to increase bussiness formality Infrastructure Investments • Accountability to sector tax payers, how money is spent? Financial Incentives : bonds and funds •Increase private and public sector participation
  19. 19. INCREASE TAX REVENU TOOLS POTENTIAL RISKS Design specific tax system, regarding sectoral characteristics and needs National tax system can benefit through at least 2 million new contributors. MSE deliver of oficial receipts will permit operate new financial products, as leasing or factoring Organized social opposition, since actual system seems “fair” for MSE, even if Simplified Tax Regime contributes less tan 0.05% of total contributions. Weak own capacities for tax report Implement National Micro and Small Entreprise Register The register will permit to know better sectoral needs and to develop specific policies. Register will allow MSE participate in State’s contracts and other formal contracts and tenders Register is perceived as State control for tax proposes.
  20. 20. INFRASTRUCTURE INVESTMENTS TOOLS POTENTIAL RISKS Productive Infrastrucuture could be provided by public or private invesments: roads, industrial water and electricity supply. Increasing public and private investment will have a positive efect in MSE running cost and competitiveness MSE sector is volatile and can make some infrastructure useless. Invest in Productive Innovation Centers Increase level and use of technolgy in MSE process Configure clusters and improve vertical and horizontal intergration in production systems. Services sustainability could be hard to reach. Explore private and public colaboration to pay off investements. Invest in MSE’s human resources, technical formation programs Penetrate in new markets and sectors, integrating information technology. Improve MSE management culture Human resources are unstable.
  21. 21. Bolivia has succesfully issued emission of national bonds in international financial markets. A special emission could be feasible in order to boost MSE sector. Financial Incentives : Bonds and funds. TOOLS POTENTIAL RISKS Training and capacity building bonds MSE could receive “Training bonds” that can be exchanged against MSE specific training programs. MSE personal unstability. Cleaner production bonds MSE could receive “Cleaner Production bonds”, wherever environmental friendly measures are adopted in production systems MSE don’t consider environmental factor as a social duty. Financing cluster integration Large and medium size companies could benefit from special credit conditions (guarantee fonds, low interest rate, long term funding…), wherever MSE are integrated in the value chain. Risks are similar as current banking operations.
  22. 22. Thank you!