Independent Evaluation of CIC/FIAS Strategy and Program. Volume II Case Studies FINAL. 25 May Submitted to:

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1 Independent Evaluation of CIC/FIAS Strategy and Program Volume II Case Studies FINAL 25 May 2012 Submitted to: International Finance Corporation 2121 Pennsylvania Avenue, NW Washington, DC Submitted by: Nexus Associates, Inc. 5 Water Street, Suite 1A Arlington, MA (781) oldsman@nexus-associates.com Contract # Vendor #28879 Nexus Associates, Inc. 0

2 Acronyms and Abbreviations AAK ACAPR ADR ANALDEX AS ASOP BEE BPM BRRU CAE CAMACOL CCN CCS CIA CIC CIEM CIT CONFECAMARAS CPC DB DBRA DE DFID DFO DIAN DNP DOC DONRE DPI EPZ ETC EU-VPSSP FDI FMTAAS FPD FTA FTE FY GDT GIA GOC IADB IBRD IC ICAP IDA IEG IFC IMCO IPA IZ KEPSA KICP KIPPRA KLRC KM LATF LLC LMIs LOL LTSU LURCs M&E Architectural Association of Kenya Advisory Council for Administrative Procedures Reform Alternative dispute resolution National Association for Foreign Trade Advisory Services Advisory Services Operational Portal Business enabling environment Business Process Management Business Regulatory Reform Unit Centro de Atencion Empresaria Colombian Chamber of Construction City Council of Nairobi Compliance cost savings IFC Infrastructure Advisory Investment Climate Department Central Institute of Economic Management Corporate Income Tax Confederation of Colombian Chambers of Commerce Private Competitiveness Council Doing Business Doing Business Reform Advisory Development effectiveness UK Department for International Development Donor-funded operation National Tax and Customs Administration (Direccion de Impuestos y Aduanas Nacionales) National Department of Planning Department of Construction Department of Natural Resources and Environment Department of Planning and Investment Export Processing Zones Extended-term consultant EU Vietnam Private Sector Support Program Foreign direct investment Funding Mechanism for Technical Assistance and Advisory Services Financial and Private Sector Development Unit Free Trade Agreement Full-time equivalent Fiscal year General Department of Taxation Global Indicators and Analysis Government of Colombia Inter-American Development Bank International Bank for Reconstruction and Development Investment climate Investment Climate Action Plan International Development Association Independent Evaluation Group International Finance Corporation Mexican Institute of Competitiveness Investment promotion agency Industrial Zone Kenya Private Sector Alliance Kenya Investment Climate Program Kenya Institute for Public Policy Research and Analysis Kenya Law Reform Commission Knowledge management Local Authority Transfer Fund Limited Liability Company Land Market Intermediaries Law on Land Long Term and Stable Use Land Use Rights Certificates Monitoring and evaluation Nexus Associates, Inc. 1

3 MTIT/MCIT MIGA MOF MONRE MOTI MOU MPDF MSME NDP NLIS NRD OoG OPM PCR PIT PPC PPD PPP PREM PSD PSDS PSR PTO PWC RBA RBLL RFP RIA RMU RRC RRI SBP SCM SEZ SME SNC SNDB STC STF TAMP TOR TTL UniAndes USAID VAT VBF VCCI VUCE WB WBG WCO Ministry of Trade, Industry and Tourism/Ministerio de Comercio, Industria and Turismo Multilateral Investment Guarantee Agency Ministry of Finance Ministry of Natural Resources and Environment Ministry of Trade and Industry Memorandum of Understanding Mekong Private-Sector Development Facility Micro, Small and Medium Enterprises National Development Plan National Land Information System Norway Registers Development Ltd. Office of the Government Officer of the Prime Minister Project Completion Report Personal Income tax Provincial People s Committee Public-private dialogue Public-Private Partnership Poverty Reduction and Economic Management Network Private sector development Private Sector Development Strategy Project Supervision Report Provincial Tax Office PriceWaterhouseCoopers Risk-Based Auditing Regional business line leader Request for proposals Regulatory impact analysis Results Measurement Unit Regulatory Reform Committee Rapid Results Initiative Single Business Permit Standard Cost Model Special Economic Zone Small and Medium Enterprises National Competitiveness Administrative System Sub-National Doing Business Short-term consultant Special Task Force Tax Administration Modernization Project Terms of reference Task team leader Universidad de los Andes US Agency for International Development Value Added Tax Vietnam Business Forum Vietnam Chamber of Commerce and Industry Ventanilla Unica Comercio Exterior - Foreign Trade Single Window World Bank World Bank Group World Customs Organization Nexus Associates, Inc. 2

4 Table of Contents I. Colombia Sub-National Doing Business... 4 II. Colombia Trade Logistics Advisory Program III. Kenya Investment Climate Program IV. Vietnam Land Projects IV. Vietnam Tax Policy and Administration Nexus Associates, Inc. 3

5 I. Colombia Sub-National Doing Business Overview 1. The Colombia Subnational Doing Business project (553565) was approved on 14 March The project centered on carrying out two rounds of benchmarking using the Doing Business methodology developed by the World Bank. The first round covered 13 cities (including Bogota 1 ) and five topics: starting a business, registering property, paying taxes, trading across borders, and enforcing contracts. The second round covered 21 cities, including the original 13 and added one additional topic dealing with construction permits. It was envisioned that the results of the benchmarking exercise would foster a competitive reform environment, leading municipalities to enact reforms to reduce administrative barriers to private sector development. The project ended in December At that time, roughly US$661,000 had been spent by IFC, excluding in-kind and parallel support provided by the Government of Colombia (GOC) and the US Agency for International Development (USAID). Background The Government of Colombia has taken steps to restore security in the country and promote national and regional competitiveness. 2. Alvaro Uribe Vélez was elected president in May 2002 based on a platform that focused on restoring security in the country after decades of violence. Among his promises was to continue to pursue the broad goals outlined in Plan Colombia a US-backed anti-narcotic initiative within the framework of a long-term strategy. Designed to weaken paramilitary and guerilla organizations, the Democratic Security Policy called for the consolidation of state control throughout the country, protection of the population, elimination of the illegal drug trade, maintenance of a deterrent capability, and improved government operations. Over the next few years, the government established a presence in all 1,098 municipalities, negotiated the demobilization of illegally armed groups, and continued to mount military operations against FARC and other organizations. After the reelection of Uribe in 2006, the government announced a new strategy to consolidate security gains and broaden efforts to stem the narcotics trade and end the cycle of violence. The National Consolidation Plan (Plan Nacional de Consolidacion) aimed to align military, political, social, and economic activities in support of the government s agenda. 3. While striving to advance security, President Uribe also took steps to boost the overall competitiveness of the country and promote greater private investment. The National Development Plan ( ) 2 outlined four overarching objectives: address the security needs of the population; support sustainable growth and employment-generating activities; alleviate income inequalities; and increase the transparency and efficiency of the government. The NDP established the reduction of red tape as a key element of the strategy to improve the business environment and foster growth. In June2004, the National Council for Economic and Social Policy (Consejo Nacional de Politica Economica y Social) formulated a strategy to streamline administrative procedures through greater inter-agency coordination, revisions to the legal framework, rationalization of existing procedures, and improvements in information systems. 3 By December 2004, 1 Project activities and expenses associated with Bogota are covered under the Global Doing Business program. 2 The NDP was enacted through Law 812 of Policy document No Nexus Associates, Inc. 4

6 roughly 150 procedures had been simplified and 18 eliminated through administrative decrees. 4 Eight months later the legislature passed a new law, which further streamlined administrative requirements, allowed for submission of electronic documents, and provided for the review of all new procedures prior to their enactment Efforts to simplify the business registration process in Colombia began in In this regard, the National Planning Department and the Confederation of Chambers of Commerce (CONFECAMARAS) have worked with local chambers of commerce to establish one-stop shops (Centro de Atencion Empresaria CAE) in selected cities across the country. CAEs were opened in six cities Barranquilla, Bogotá, Bucaramanga, Cali, Cartagena, and Medellín in May 2003 with support provided by the InterAmerican Development Bank (IDB). The program was expanded in 2006 to include fifteen additional cities with support provided by the Government of the Netherlands. CAEs collect and process information required by national and local agencies involved in business registration and licensing The National Competitiveness Administrative System (SNC) was created 2006 under the coordination of the National Competitiveness Commission. The system includes Regional Competitiveness Commissions that were established in by the National Department of Planning (Departmento Nacional de Planeación DNP). 8 The regional commissions are comprised of regional and local authorities as well as representatives of the private sector. 9 The commissions are charged with producing Regional Competitiveness Plans (Planes de Regionales de Competitividad). 10 The Sub-national Doing Business project builds on prior work conducted by the World Bank Group in Colombia 6. Colombia has been included in Doing Business since the inception of the initiative in In keeping with the design of the global program, Doing Business is based on the performance of Bogota the largest city in the country with more than 6.8 million inhabitants. The Doing Business 2007 report ranked Colombia 79 th out of 175 countries. Government officials interviewed as part of this evaluation noted that the President Uribe was concerned about Colombia s rankings in Doing Business (several people interviewed during the preparation of the case study used the word obsessed ) and issued a directive to all ministries to identify actions needed to improve performance. 11 The President saw Doing Business as a means for boosting investor confidence in the country, building on its relatively strong performance in certain areas covered by the report. Responsibility for coordinating the government response was assigned to the Ministry of Trade, Industry and Tourism (Ministerio de Comercio, Industria and Tourismo - MCIT). 4 Colombia Program to Support the National Logistics Policy, (Co-L1090), Loan Proposal, Inter-American Development Bank, undated. 5 Law No 962 of 2005 (8 July) 6 Interview with Julio Cesar Silva, Executive Vice President, Confederation of Colombian Chambers of Commerce (CONFECARAS), 6 July of the 21 cities (including Bogota) that were included in the sub-national Doing Business reports had CAEs. 8 Interview with Carolina Renteria, 28 June Written comments from IFC, 15 June Ibid. 11 Interview with Liliana Maria Rojas, Director of Productivity and Competitiveness, Ministry of Trade, Industry and Tourism, 7 July Nexus Associates, Inc. 5

7 7. Prior to the approval of the Sub-National Doing Business (SNDB) project, IFC LAC had worked with CONFECAMARAS to establish an online system for business registration (Portal Colombia ). 12 It had also worked with local authorities to streamline inspection procedures in Bogota. 13 (Neither of these projects drew on funding from FIAS.) In 2006, IFC LAC and the GOC were involved in discussions to initiate a project to simplify construction permitting and inspection procedures in major cities. 14,15 The MOF submitted a formal request for assistance to implement the Subnational Doing Business project, with DNP assigned as the principal government counterpart. 8. On 13 June 2006, the Minister of Finance submitted a letter of request for assistance from FIAS. Specifically, the letter asked FIAS to help design policy and institutional solutions to improve Colombia s investment climate. As a first step, this would consist in stimulating internal competition among administrative subdivisions by creating Doing Business indicators at the subnational level in selected cities and states. 16 Project Design and Implementation Chronology 9. The table below presents a project chronology. 12 Approved in July Approved in December PDS Approval, V1, 14 March This project (National Plan Colombia ) was approved in March It involves reengineering processes within relevant agencies and establishing needed software systems. 16 Letter from Alberto Carrasquilla Barrrera, Minister of Finance and Public Credit, to Mierta Capaul, Regional Program Coordinator, FIAS, World Bank Group, 13 June Nexus Associates, Inc. 6

8 Table 1. Project Chronology Date Event/Milestone 13 June 2006 Letter of Request submitted by Minister of Finance and Public Credit 1 July 2006 Project start date (a) Sept 2006 CIC/FIAS and GoC hold preliminary project meetings in Bogota Jan 2007 Follow-up meetings in Bogota to discuss the project with the government counterpart (National Planning Department - DNP) 14 Mar 2007 AS PDS Approval Version March Presentation of project concept to local governments in 12 cities 2007 Aug 2007 Preliminary first round results presented to local governments and a right of reply period 30 Jan 2008 Official public presentation of the first report, Doing Business in Colombia Feb 2008 Letter of Request submitted by High Advisor on Competitiveness and Productivity Mar 2008 Conference to discuss working plan on Doing Business and launch regional competitiveness plans 9 Feb 2009 AS PDS Approval Version 2.0 (details second round activities and increases budget) 2-4 march 2009 Training local partner Universidad de los Andes and Private Council on Competitiveness Mar 2009 Second round of benchmarking begins 19 May 2009 Presentation detailing the second round of the project in Bogota, held in conjunction with a meeting of the Regional Competitiveness Commissions July 2009 Coding training with local partner Oct 2009 Preliminary second round results presented to local governments and a right of reply period 16 Feb 2010 Official public presentation of the second report, Doing Business in Colombia 2010 May 2010 Project staff present the 2010 results at a peer-to-peer learning workshop in Manizales Jul 2010 Training session held to teach four consultants hired by DNP the Doing Business methodology 31 Dec 2010 Project completion date Notes (a) The project implementation date was originally presented as 20 February 2007 in PDS Version 1.0 (14 March 2007), however, the date was revised in PDS Version 2.0 (9 February 2009). No explanation for the change is given in the document However, CIC/FIAS subsequently noted, Project dates were modified to reflect the implementation of phase II. At that point, the pre-implementation phase was modified to span from July 2006 to Nov 2008, which included Phase I of benchmarking. (Written comments from CIC/FIAS 23 April 2012.) Source: Nexus Associates based on project documents and written comments from CIC/FIAS 23 April 2012 Project design The project aimed to create a sustainable benchmarking process that would motivate reforms leading to lower costs. 10. As articulated in the original PDS Approval document, the goal of the project is to lower administrative barriers at the subnational level and to reduce transaction costs -i.e. time/cost/procedures to open a business, register property, enforce contracts, pay taxes and trade across borders. 17 The document also identified four sub-objectives: Create competition to reform at the subnational level by combining the media appeal of the Doing Business indicators and policy dialogue with public officials and the private sector. Motivate reformers by showing that with the adoption and efficient implementation of simple reforms, specific locations can become more competitive nationally and internationally. Measure progress over time by repeating the benchmarking to capture improved performance spurred by the competition created by the initial benchmarking. Ensure sustainability by being involved over a period of approximately 2 years and identify local partners to transfer methodology from year 2 onwards. 17 PDS Version 1.0 (14 March 2007) Nexus Associates, Inc. 7

9 11. The objective statement was modified after the initial project approval. The new wording focused on the adoption of reforms: The objective is to promote reforms that reduce the number of procedures, time and cost of doing business in Colombian cities through repeated benchmarking (every 2 years) using the Doing Business indicators. It went on to add, that it was expected that at least half of the 12 cities that were benchmarked in 2008 would institute reforms by 2010 and these cities in aggregate would implement at least ten reforms in the following areas: starting a business, registering property, trading across borders, paying taxes and enforcing contracts. 18 The project was designed according to the standard Doing Business approach. 12. As originally approved, the project would focus on measuring five Doing Business topics starting a business, registering property, paying taxes, enforcing contracts, and trading across borders in 12 Colombian cities (13 including Bogota). Two benchmarking rounds were planned. The first report was expected to be completed in November 2007 with the second report completed 12 months later in November The project would end with the release of the second report Following a standard approach, each round would consist of the following activities: roadshow to present the project to the participating cities; data collection and preparation of indicators; confidential consultations with local authorities on preliminary results; production of report in both English and Spanish; dissemination conference; and follow up discussions with governments and donors regarding implementation. 14. Additionally, the project would include identifying and training a local institution to assist in the preparation of the Doing Business report with the aim of transferring the methodology upon completion of the project. Given the status of Colombia as a middle-income country with a history of being a strong reformer, the SNDB project managers believed that this would provide a means for ensuring the sustainability of the initiative As discussed in more detail below, the project design was modified following the completion of the first round. The second round would cover an additional eight cities and one additional indicator dealing with construction permits. 22 The total budget for the project was roughly US$1 million. 16. At the time of the original project approval, the budget was set at US$375,000 and only included the cost of the first round of benchmarking. As shown in Table 2, the budget was increased in February 2009 to US$996,000 to cover the full cost of the two rounds. The budget was increased further over time to roughly US$1,057,000 without any significant change in the scope of work. Approximately 65 percent of the budget (US$682,000) was from IFC-managed funds, including US$67,000 from CONFECAMARAS. The remaining 35 percent (US$375,000) was to be in the form of in-kind and parallel support from GOC and USAID. 18 PDS Approval Version 5 (30 Jun 2010). The objectives are consistent with the results matrix approved in PDS Version 2. (9 February 2009). 19 PDS Approval, Version 1.0, op. cit. 20 Ibid. 21 Interview with Zenaida Henandez Uriz and Mierta Capaul, 17 June PDS Approval Version 2, 9 February Nexus Associates, Inc. 8

10 Table 2. Approved Project Budget (US$) PDS V1 (3/07) PDS V2 (2/09) PDS V4 (11/09) Funds managed by IFC DFO Funding 1 FIAS 150,000 PDS V5 (6/10) PDS V7 (12/10) USAID 50,000 50,000 67,772 67,772 67,772 USAID DB 109, , ,000 (b) SECO 200, , , ,000 Pooled Trust Fund 250, , , ,135 Client Fees (Cash) 67,000 67,000 67,000 67,000 Sub-total 200, , , , ,907 Additional contributions Govt. of Colombia In-kind 60, , , , ,000 contributions Govt. of Colombia Parallel Support 54,000 70,000 70,000 70,000 (c) USAID Colombia Parallel Support 115, ,000 (a) 115, , ,000 Sub-total 175, , , , ,000 Total Budget 375, ,000 1,021,907 1,051,907 1,056,907 (d) Note: (a) This figure includes a USAID/MIDAS contribution of US$100,000 (from a fund earmarked for DNP) in addition to the USAID Colombia contribution presented in PDS Version 1.0 (US$115,000). (b) PDS V4 notes that a US$100,000 USAID contribution is being channeled through CICRA s USAID TF and that this contribution was included as parallel support in previous PDS approval documents. (c) This figure includes a US$50,000 from DNP and US$20,000 from the Ministry of Trade, Industry and Tourism. Previous budgets were based solely on a DNP contribution of US$54,000. (d) According to PDS V4, the budget was revised to reflect changes in funding sources of funding, but did not imply a change in the scope or overall cost of the project. Source: Nexus Associates based on information in PDS Approval documents Project implementation The principal government counterpart for the project was the National Department of Planning (Departmento Nacional de Planeación DNP). 17. DNP is an administrative department within the executive branch reporting directly to the Office of the President. It is responsible for monitoring economic performance, coordinating development policy, preparing the national plan, and managing the investment budget. 23 In this capacity, DNP has a lot of political clout and can bring different parties to the table to discuss needed reforms As noted above, DNP oversees the functions of the regional competitiveness councils, which have responsibility for regional planning. It was expected that information from the SNDB would flow into the regional competitiveness plans. Participating cities and Doing Business indicators were selected in concert with the DNP. 19. The SNDB team carried out missions to Colombia in September 2006 and January 2007 to meet with government officials and other stakeholders in preparation for the initial benchmarking exercise. Twelve 23 Interview with Orlando Garcia, former Director of Enterprise Development, National Planning Department, 6 July Ibid. Nexus Associates, Inc. 9

11 cities were selected for the first round, taking into account population size, economic activity and political diversity. 25 As noted above, an additional eight cities were chosen for the second round based on the same criteria. The participating cities are listed in Table 3. The size of the cities varies dramatically from less than 200,000 inhabitants to more than 2 million, or 6.8 million with the inclusion of Bogota. 26 Table 3. Participating Cities City, Department Population in 2005 (a) Round Bogota, Distrito Capital 6,778,691 1, 2 Medellin, Antioquia 2,219,861 1, 2 Cali, Valle del Cauca 2,075,380 1, 2 Barranquilla, Atlantico 1,112,889 1, 2 Cartagena, Bolivar 895,400 1, 2 Cúcuta, Norte de Santander (b) 585,542 1, 2 Bucaramanga, Santander 509,918 1, 2 Ibaque, Tolima 495,246 1, 2 Pereira, Risaralda 428,397 1, 2 Santa Marta, Magdalena (b) 414,387 1, 2 Villavicencio, Meta 384,131 1, 2 Pasto, Nariño(b) 383,846 2 Monteria, Córdoba (b) 381,284 2 Manizales, Caldas 368,433 1, 2 Valledupar, Cesar 348,990 2 Neiva, Huila 315,332 1, 2 Armenia, Quindio 272,574 1, 2 Popayán, Cauca (b) 258,653 1, 2 Sincelejo, Sucre (b) 236,780 2 Riohacha, Guajira 169,311 2 Tunja, Boyaca 152,419 2 Notes (a) 2005 census data. Departamento Administrativo Nacional de Estadistica, Republica de Columbia (dane.gov.co). The total population of Colombia in 2005 was 41,468,384. (b) The city is located in a frontier region according to IFC. Source: Nexus Associates. 20. As noted above, five topics were selected for inclusion in the study in consultation with DNP starting a business, registering property, paying taxes, enforcing contracts, and trading across borders. 27 It was felt that these topics were relevant to regional competitiveness and that the analysis would demonstrate differences among the cities. 21. The decision was made to exclude analysis of construction permitting procedures in the first round of the SNDB project even though this process is under the jurisdiction of local government. The original PDS approval document states, The IFC LAC TA Facility is planning to initiate a Municipal Scorecard project in Colombia covering the procedures to obtain a construction license and inspections... Those indicators are complementary to the 5 indicators measured through this proposed project. 28 The decision was reconsidered after the first round and this topic was included in the second round. 25 BTOR: Mission to Colombia, January This mission also entailed initial interviews with five prospective law firms to carry out the logistic and administrative tasks for the project. The team also held meetings with PriceWaterhouseCoopers, USAID Colombia, National Association of Foreign Trade (ANALDEX), and IFC LAC, during the mission. 26 According to CIC/FIAS, these cities cover the 21 largest and economically most important cities in Colombia. (Written comments from CIC/FIAS, 23 April 2012.) 27 BTOR: Mission to Colombia, September The mission was comprised of two CIC/FIAS staff: M. Capaul and Z. Hernandez. 28 PDS Version 1.0, 14 March 2007 Nexus Associates, Inc. 10

12 The Center for Strategy and Competitiveness at Universidad de los Andes (UniAndes) was tasked with responsibility for two topics. 22. During the second round, the SNDB team worked with a local institution to help ensure the sustainability of the initiative. The Center for Strategy and Competitiveness at Universidad de los Andes (UniAndes) in association with the Private Competitiveness Council (Consejo Privado de Competitividad CPC), was selected through a competitive process. 29 The contract with UniAndes was executed directly with DNP based on a TOR developed by the SNDB team. 30 The contract with UniAndes stipulates that the institution, working in concert with CPC, would be responsible for the collection, coding, and analysis of two DB topics registering property and dealing with construction permits. The TOR expressly states that the World Bank would work with the local institution and gradually transfer the Doing Business methodology to the institution; however, it does not specify the terms or conditions governing Uniandes right to use the methodology after the second round of benchmarking. 31 According to the SNDB project managers, the rationale for a gradual transfer of know-how came from the lessons learned during a similar process in Mexico s SNDB project in 2008, which demonstrated that transferring the DB methodology required a great deal of training and supervision The SNDB team provided training to UniAndes/CPC and supervised its work. Specifically, the SNDB team conducted a two-day training session for staff of UniAndes/CPC on 2-3 March 2009, focusing on the DB methodology and logistical arrangements for collecting data. 33 Training on data coding and analysis was provided in July Additional training was provided in the course of carrying out the assignment. The SNDB team carried out activities as outlined in the project approval documents. 24. The first round of benchmarking activities took place from March 2007 to January 2008, ending with the public presentation of Doing Business in Colombia 2008 at a conference in Bogota. 35 Benchmarking activities for the second round began in March 2009, culminating in February 2010 with the public presentation of the Doing Business in Colombia 2010 report, again, in Bogota The reports are based on information provided by people in the country deemed knowledgeable about laws, regulations, and procedures particular to each indicator. IFC hired local organizations to identify experts in appropriate fields and coordinate data collection. The firms included: Cavelier Abogados starting a business, registering property, and enforcing contracts; Colombian Chamber of Construction (CAMACOL) dealing with construction permits; National Association of Foreign Trade (ANALDEX) trading across borders; and PriceWaterhouseCoopers paying taxes. 26. Questionnaires were sent to identified experts lawyers, accountants, business consultants, customs brokers, freight forwarders, architects and property developers as well as government officials, municipal 29 The SNDB team met with four institutions and received proposals from two Fedesarrollo and Universidad de los Andes Centro Estrategia de Competitividad. Written comments from IFC, 15 June The contract value was in the amount of COP130 million (roughly US$50,000) 31 Local Partner TOR (Estudios Previos Contratacion Servicios Profesionales), DNP, 3 April The SNDB team in Mexico worked with the Mexican Institute of Competitiveness (IMCO) on a project covering four Doing Business topics starting a business, dealing with construction permits, registering property, and enforcing contracts. (Written comments from IFC, 15 June 2011). 33 PSR#5, FY09/Q4. (Written comments from IFC, 15 June 2011.) 34 PSR#6, FY10/Q2 35 PSR #3, FY08/Q4 36 PSR #5, FY09/Q4 and PSR #7, FY10/Q4 Nexus Associates, Inc. 11

13 judges, and representatives of local chambers of commerce. 37 According to data provided by CIC/FIAS, for the Doing Business 2010 report, 282 questionnaires were completed by private sector informants and another 99 were completed by local authorities. 38 Table 4 presents a breakdown of the private sector informants by topic and city. In most cases, three informants completed questionnaires for each topic in a particular city. However, in two cities Popayán and Valledupar only one private sector informant participated. 39 In the case of paying taxes, PriceWaterhouseCoopers is responsible for providing data for this indicator worldwide under an agreement with the World Bank, drawing on information from relevant tax authorities. City, Department Table 4. Number of Private Sector Informants by DB Topic and City Starting a Business Paying Taxes Registering Property Enforcing Contracts Dealing with Construction Permits Trading Across Borders Armenia, Quindio NA Barranquilla, Atlantico Buenaventura NA NA NA NA NA 7 Bucaramanga, Santander NA Cali, Valle del Cauca NA Cartagena, Bolivar Cúcuta, Norte de Santander NA Ibaque, Tolima NA Manizales, Caldas NA Medellin, Antioquia NA Monteria, Córdoba NA Neiva, Huila NA Pasto, Nariño NA Pereira, Risaralda NA Popayán, Cauca NA Riohacha, Guajira NA Santa Marta, Magdalena Sincelejo, Sucre NA Tunja, Boyaca NA Valledupar, Cesar NA Villavicencio, Meta NA Source: CIC/FIAS 27. UniAndes coded and analyzed information related to the two indicators for which it had responsibility. CPC provided two analyst to help UniAndes, but then failed to sustain its participation in the project. 40 It fell to UniAndes to pick up the slack. 28. The respective topic leaders from the SNDB team reviewed the information provided by informants and attempted to validate responses. Preliminary results were shared with local authorities to provide an opportunity to correct potential errors. Officials were asked to provide written feedback along with documentation to substantiate suggested changes. SNDB project managers consider this right of reply to 37 Private sectors informants are paid a fee to complete the questionnaire; government officials, judges and representatives of chamber of commerce are unpaid. (Written comments from CIC/FIAS, 23 April 2012) 38 PSR#6, FY10/Q2. 39 In Valledupar, the Chamber of Commerce provided information on construction permits. In Popayan, questionnaires were completed by the Municipality (Dept. of Planning) and the Curaduria Urbana private, but regulated, professionals who receive, review and approve construction permits in Colombia. (Written comments from CIC/FIAS, 23 April 2012) 40 Written comments, op. cit. Nexus Associates, Inc. 12

14 be an important element of the project design as it motivates local government engagement in discussion around regulatory reforms. 41 Given this feedback, the SNDB team re-contacted private sector informants to reconcile differences. 42 In cases where estimates continued to differ, the SNDB team indicated that it took the median value in line with the overall Doing Business methodology. 43 (The SNDB team made additional revisions to results presented in the 2008 report after its publication. Twenty-seven corrections were made to the 2008 data, primarily related to paying taxes. These were included in an Excel file provided by CIC/FIAS to Nexus Associates.) The results of the exercise were published in reports and presented at public meetings held in Bogota. Notable speakers included President Uribe, Minister of MCIT, and the Director of DNP. The meetings were well attended (400 people attended the presentation of Doing Business Colombia 2010) and received substantial media coverage. The reports demonstrated differences in performance across the participating cities and offered a series of recommendations. 30. As shown in Table 5, while many requirements associated with particular topics are mediated by national laws and regulations, there is still a fair amount of variation across cities in Colombia. For example, the 2010 report shows that the number of procedures to start a business in different cities in Colombia varies from eight to 15. The report attributes this to the fact that some cities require land use certificates as well as other local certificates as part of the process. Differences in costs of starting up a business are attributed to variations in registry tax rates with the range established by national law (0.3 to 0.7) as well as stamp duties levied by municipal and departmental governments. However, there is no variation in the number of procedures required to enforce contract or the number of documents required to import/export goods. These are set entirely by national policy. Moreover, while differences in the number of annual tax payment and tax rates exist across cities, the figure cited for the time required to pay taxes is uniform across all cities; the time estimate is based solely on three national taxes corporate income tax, value added tax, and labor taxes (including payroll taxes and social contributions). 41 (Source: AS Completion Version 1.0, 21 April 2011). 42 Written comments from IFC, 15 June Interview with SNDB team, 28 June According to CIC/FIAS, the corrections of the Doing Business Colombia 2008 data were published on the Doing Business website at the same time the Doing Business Colombia 2010 report was launched. (Written comments from CIC/FIAS, 23 April 2012.) Nexus Associates, Inc. 13

15 Topic Starting a Business Registering Property Paying Taxes Enforcing Contracts Trading Across Borders Indicator Procedures Time (days) Cost (% of GNI per capita) Procedures Time (days) Cost (% of property value) Payments (number per year) Time (hours per year) Total tax rate (% profit) Procedures Time (days) Cost (% of claim) Documents to export (number) Time to export (days) Cost to export (USD per container) Documents to import (number) Time to import (days) Cost to import (USD per container) Table 5. Summary Statistics Min Mean Median Max (a) (a) (a) (a) (8) (9.5) (9) (12) (8) (17.0) (13) (38) (15.1) (17.4) (15.6) (29.9) (10) (11) (11) (13) (12) (22) (22) (33) (1.9) (2.5) (2.4) (4.0) (16) (21) (20) (26) (208) (68.4) (34) (440) (21.4) 6 6 (b) (b) 643 1,600 (b) 8 7 (b) (b) 657 1,562 (b) (208) (71.6) (34) (925) (32.2) 6 6 (b) (b) 1,067 1,744 (b) 8 7 (b) (b) 1,160 1,750 (b) (208) (71.0) (34) (918) (31.6) 6 6 (b) (b) 1,194 1,743 (b) 8 7 (b) (b) 1,239 1,725 (b) (208) (77.3) (34) 1,352 1,520 (1,520) (44.8) 6 6 (b) (b) 1,440 1,890 (b) 8 7 (b) (b) 1,914 1,990 (b) Dealing with Procedures Construction (11) (14.5) (14) (19) Permits (c) Time (days) NA NA NA NA (38) (113.3) (114) (181) Cost (% of GNI per capita) (85.5) (182.9) (181) (293.7) Note: (a) Numbers in parentheses are results for the original 12 cities. (b) The Trading Across Borders topic was modified following the first round to measure trading between Bogota and four -- Barranquilla, Buenaventura, Cartagena, and Santa Marta. Statistics for 2010 are calculated for only these four cities and not the original full-12 city sample. Given the change in methodology a comparison of 2008 and 2010 statistics for Trading Across Borders is invalid. (c) This indicator was not included in Source: Nexus Associates calculations based on data in subnational Doing Business reports. Nexus Associates, Inc. 14

16 31. The following table presents the recommendations made by CIC/FIAS and highlights those recommendations from the 2008 report that were reiterated in the 2010 report. Table 6. SNDB Reform Recommendations Indicator What to reform? 2008 What to reform? 2010 Start-up online Promote electronic services Starting a business Registering Property Paying Taxes Enforcing Contracts Expand the number and efficiency of single access points Lower the number of requirements Promote standardized incorporation documents Eliminate special certificates, such as Paz y Salvo Predial and Paz y Salvo de Valorizacion Keep cadastres updated and link them with the Registry Improve the implementation of the SIR Introduce fixed fees and allow electronic payments Introduce electronic payment of registration tax and registration rights Make the use of notaries optional Ease the tax burden by combining taxes Introduce online filing Simplify tax administration Introduce specialized commercial courts Reduce backlog in courts Expand performance-based incentive model to small claims court Dealing with Not Applicable Construction Permits Trading Improve road infrastructure Across Improve and expand electronic systems Borders Reduce delays in granting approvals and clearances Source: Nexus Associates based on Doing Business in Colombia reports (2008 and 2010) Complete the implementation of CAE Centralize registration Publicize reforms Unify the affiliation to social security agencies Eliminate special certificates (such as Paz y Salvo Predial and Paz y Salvo de Valorizacion) or make them electronically available Improve the efficiency of registry offices and link them to the cadastre Improve the implementation of the system for registry information (SIR) and extend the single window for registries (VUR) to other cities Introduce low, fixed fees and try reducing municipal stamp duties Combine procedures and allow for electronic payments Make compliance easier through broad-based reforms Make systems electronic Provide more transparent information to facilitate compliance Introduce specialized courts or reassign workloads to special-purpose courts Implement modern systems for case management and judicial statistics Rely on small claims courts Continue to modernize procedural rules Strengthen mechanisms for the evaluation of judicial staff Promote one-stop shops Standardize mediation services Allow online application for building plan approval and utilities connections Rationalize taxes and share best local practices Rationalize inspections Involve stakeholders in the reform process Strengthen the urban curator system Implement investments to improve inland road infrastructure Continue to streamline and increase the use of simultaneous inspections Reduce and streamline documentation requirements Increase container capacity at ports Reduce and streamline informal inland checkpoints Improve regulation of truck industry Nexus Associates, Inc. 15

17 After publication of the SNDB reports, DNP organized workshops to enable participating cities to exchange information on good practices. 32. DNP invited participating cities to attend a peer-to-peer workshop after the publication of each report to provide an opportunity for cities to exchange information on good practices. The first event was held in Pereira on 12 March 2008; the second event was held in Manizales on 4 May Nine of 21 participating cities Armenia (ranked 7 th ), Barranquilla (17 th ), Bogota (12 th ), Bucaramanga (18 th ), Cali (20 th ), Ibague (2 nd ), Manizales (1 st ), Neiva (11 th ), and Pereira (3 rd ) sent a delegation to the event in Manizales. In general, delegates came from either the largest or best performing cities. Members of the SNDB team participated in both events. 33. DNP also had separate meetings with Ministry of Justice and the Superior Judicial Council (Consejo Superior de la Judicatura) to discuss potential reforms related to contract enforcement. 45 The SNDB team conducted training sessions for independent consultants hired by DNP to provide technical assistance to cities involved in the SNDB project. 34. DNP did not feel that the peer-to-peer workshops were particularly effective; there was insufficient time to delve deep into any of the topics. 46 Officials believed that more effort was needed to help cities understand factors contributing to their relative performance and undertake needed reforms. To this end, DNP elected to hire consultants to provide technical assistance to participating cities, focusing on four areas starting a business, paying taxes, registering property and dealing with construction permits. The SNDB team reviewed the TOR drafted by DNP and the qualifications of candidates of the assignment. According to officials from DNP, it was very difficult to find qualified individuals. 47 In the end, DNP hired four independent consultants. 35. Between July 2010, the SNDB team conducted a training session for the four consultants on the Doing Business methodology, results presented in the report, and ways to work with cities. 48 IFC LAC participated in the training sessions on construction permits Following the training, the DNP consultants provided technical assistance to 19 cities on the subjects noted in Table Specifically, the consultants convened working groups in each municipality to identify areas of reform and prepare action plans. No further diagnostic work was conducted by the consultants. 51 All told, the consultants provided 320 person-days of technical assistance, or roughly eight days per topic per city, over the course of four months (August to November 2010). Beyond the training, the SNDB team did not provide any further assistance either to the consultants or directly to cities Interview with Fernando Jose Estupinan Vargas, Ana Paola Gomez Acosta, and Sandra Melana Gomez, DNP, 7 July Ibid. 47 Ibid. 48 Copies of training materials, dated July Ibid. 50 Medellin did not request or receive technical assistance. 51 Fernando Jose Estupinan Vargas, op. cit. 52 The PCR (21 April 2011) states that 19 out of the 21 cities received technical assistance and notes, the [SNDB] team continued supporting the implementation of TA by providing inputs and materials for the consultants to conduct diagnostics and provide reform recommendations based on the findings of the SNDB in Colombia 2010 report. Nexus Associates, Inc. 16

18 Table 7. Topics of Technical Assistance Provided by DNP Consultants City, Department (a) Starting a Business Paying Taxes Registering Property Dealing with Construction Permits Armenia, Quindio Barranquilla, Atlantico Bucaramanga, Santander Cali, Valle del Cauca Cartagena, Bolivar Cúcuta, Norte de Santander Ibaque, Tolima Manizales, Caldas Monteria, Córdoba Neiva, Huila Pasto, Nariño Pereira, Risaralda Popayán, Cauca Riohacha, Guajira Santa Marta, Magdalena Sincelejo, Sucre Tunja, Boyaca Valledupar, Cesar Villavicencio, Meta Notes: (a) Medellin did not request or receive technical assistance. Source: Nexus Associates based on data provided by DNP The project met or exceeded output targets. 37. As part of the project approval process, SNDB project managers established a series of output targets for the project. As shown in Table 8, the project met or exceeded all targets, particularly with respect to the number of participants at various events and media coverage. Table 8. Output Targets and Actual Achievements Round Output Description Target Actual 1 Entities receiving AS (i.e., the number of participating cities) Reports Completed (a) 2 2 Participants in consultative workshops/ seminars/ training (b) Media Appearances Entities receiving AS (i.e., the number of participating cities) Subnational Reports Completed in English and Spanish (a) 2 2 Reports (assignments, surveys, manuals) completed (c) Participants in consultative workshops/ seminars/ training (d) Participants in report dissemination event Media appearances Notes: (a) The English and Spanish version of Doing Business in Colombia 2008 are counted as separate reports. (b) Actual is based on the number of people that attended the public presentation Doing Business in Colombia 2008 in February (c) Actual includes: six surveys (one per topic), five TORs (UniAndes, Cavelier, PWC, Camacol, Analdex), one set of training materials for the local partner, one set of training materials for coding, and six right of reply materials (one per topic). (d) This figure seems to include the participants from the project kick-off event held at the beginning of the second round (158 persons), attendees at the preliminary presentation of the results (including 58 local officials plus 3 members of the judiciary who participated in the RoR meeting,) and the training event provided to DNP s hired consultants (5). Source: Nexus Associates based on project approval documents, PSRs, and the PCR. Nexus Associates, Inc. 17

19 But the project took longer to complete than originally expected. 38. The original PDS Approval document envisioned that the SNDB reports would be prepared on an annual basis the first would be completed by November 2007 and the second by November After the initial approval of the project, IFC made the decision to extend the term of the project to 30 June 2010 to enable the reports to be prepared on a biennial basis. As noted above, the first report was published in January 2008 and the second report was released roughly two years later in February A one-year extension of the project was approved in June 2010 to allow for training of DNP consultants as well as for discussions with the government regarding the third round of benchmarking. 53 At that time, the third round was expected to begin in March However, six months after the approval of the extension, IFC made the decision to end the project effective 31 December Explained the SNDB project manager, instead of continue extending the current project and updating the PDS approval, it made more sense to include all the activities, budget and objectives of the third round as a separate project. 54 It had become clear by that point that the third round would not be finished by 30 June 2011 given unresolved issues, including funding and the role of UniAndes. 40. According to DNP officials, the decision was made to postpone the third round for two primary reasons. 55 First, local elections were scheduled for October 2011 and DNP believed that it would be beneficial to wait until the new administrations took office. Second, the role of different parties was unclear and funding for the third round had not been secured. Assessment Relevance The project was undertaken in response to a request from the Government of Colombia in order to provide comparable data and stimulate reform in different parts of the country. 41. The project came at the request of MOF and was undertaken in close collaboration with DNP. It was conceived as part of a broader initiative to streamline regulations and improve the competiveness of Colombia as well as different regions within the country. The government has taken an active role in raising awareness of the importance of local development and has established institutional structures such as the Regional Competitiveness Commissions to advance reforms. Officials hope that efforts to improve the regulatory environment will lead to greater investment and economic growth throughout the country. 42. Doing Business is seen as a tool that can be used to gain insight into differences among regions. Subnational Doing Business was seen as an important supplement to the global Doing Business report, which focuses on Bogota. 56 Numerous officials referred to Colombia as a country of regions, noting important differences in geography, resources, culture, and economic performance. The government wanted to increase awareness that regions compete for investment and need to differentiate themselves based, in part, on the strength of the business environment. 57 As noted above, DNP expected that information from the SNDB would flow into the regional competitiveness plans, building on efforts undertaken under the rubric of the Interna Agenda. SNDB is seen as an additional input into the policymaking process. 53 PDS Version 5.0, 30 June Written comments from IFC, 15 June Interview with Fernando Jose Estupinan Vargas, Ana Paola Gomez Acosta, and Sandra Melana Gomez, DNP, 7 July Orlando Garcia, op. cit. 57 Ibid. Nexus Associates, Inc. 18