Transcript Prospects for Private Sector – led growth

Proposal to National Multi-Donor Trust Fund:
Sudan Micro-enterprise Development
Government of National Unity:
Central Bank of Sudan
Ministry of Finance and National Economy
Ministry of Investment
August 2006
Strategic Objectives

The strategic or development objective to promote broad-based,
inclusive growth. This will be achieved through the sustainable
growth of microenterprise in Sudan, including its profitability, asset
growth, and formalization.

The project has four supporting objectives:
–
–
–
–
To alleviate policy impediments to formalization;
To catalyze the provision of microfinance on a commercially sustainable basis,
To increase transfer of skills to the small scale and informal private sector through
business development services and linkages to larger firms
To create a public-private partnership for low-income housing provision.
Component 1: Policy
Reducing Barriers to Formalization
Source: Voices of the Poor, D. Narayanan, World Bank 2002



Business is the main way out of poverty.
But informal sector is not registered, faces harassment, lacks access
to finance and competes for low-wage temporary work. Asset of the
informal sector not eligible for secured financing.
Large and growing informal sector due to IDPs caught in a poverty
trap.
Informality is partially a result of excessive
procedures
A Larger Informal Sector
More Corruption
PAN
ARE
LBN
GEO
ECU
PER
MEX
PAN
THA
ZWE
GTM
TZA
UKR
NGA
BLR
HND
LVA
KAZ PHL
ARM
COL
TUNARE
ITA
HRV
BEN MDANIC
VEN GRC
SEN
BWA
BGR
BEL
SVN
KOR
MEX
TUR
UGA
MAR
EGY
MYS
ROMCIV
DZADOM
ESP
LTU
ECU
ISR
BIH
ARG
SWE
POL
ALBPRT MLI
NER
ZAFGHA
FIN PAKKGZ
MDG
MOZ
CRI
HUN
HKG
TWA
NPLDEU MWI
BFA
BGD
FRA
CMR
ETH UZB KEN
SER
SGP NLD
JPN SAU
GBR
CHL
CZE
CHE
USA
AUT SVK
ZMB
LKA
LBN JAM
DNK
CAN
AUS
NZL
IRL
NOR
RUS
BRA
IRL
NOR
YEM
JOR
IRN
IND
SYR
NPL
CHE
AUS
SER
TUR
KAZ
GTM
CMR
IRN
AZE DZA
SYR
ZWEIDN UKR
THAROM
BOL
COL
KEN
ALB HRV
ITA
BIH
TWA
HND
BRA
ARM KOR
DOM
BLR
NGACIV GEO PHL
LVA
JAM
PAK
MDA
NIC
UGA
CZE
NER TZA MDG
ZMB MYS PER
VNM
BGR
GRC
KGZ SVK
JPN EGY
BEL
YEM BFA
LTU
UZB
CHN
BGD
HKG
FRAPOL
JOR
ZAF
SEN
ISR
IND
URY
USA
HUN
DEU
LKA
SVN
MNGAUTGHA PRT MLI
AZE
Corruption
Informal Employment
URY
RUS
ARG
VEN
SAU
BOL
CRI
ESP
MAR
BWA
GBR
ETHTUN
DNK
CAN
IDN
SWE
SGP
NLD
CHL
MWI
MOZ
FIN
MNG
VNM
CHN
Procedures to Start a Business
NZL
Procedures to Start a Business
Source: Doing Business 2004
Note: Partial scatterplots controlling for income per capita. Relationships are statistically significant at 5% level.
Component 1 Will focus on removing Legal
and Policy Impediments to Formalization

Informal Economy Study
– A need to better understand informal sector. What are the barriers to
becoming formal? What are the sources of social capital and traditional
legal systems? What economic activities undertaken? Which can
become viable sources of growth? Sources of market information?

Regulatory Streamlining
– Building on FIAS and informal economy study, the component would
finance legal and institutional reforms to reduce barriers to becoming
formal.

Asset registry
– The design of a database, community interface systems, community
outreach in order to begin to register the business assets of
economically-active poor to be security for loans.
Component 2: Microfinance

Bank of Sudan has engineered recovery through FDI consolidation
– Despite increasing deposit and credit growth, smaller firms still find it difficult to
obtain credit, particularly medium term
– But microfinance relatively under performing. Few banks able to achieve 10%
microfinance policy target.

Microfinance vision now drafted – to be presented September 25th
2006
Sudan Banking Sector Growth
1,200
14%
12%
10%
8%
6%
4%
2%
0%
1,000
800
600
400
200
2001
2002
2003
2004
2005
Bank Deposits - SDD
Billion
Credit to Private
Sector - SDD Billion
Capital Adequacy
Component 2: Led by Central Bank of Sudan
Will focus on establishment of sustainable
microfinance

Microfinance Policy Advisor
–

Financial sector legislative specialist
–

To support enactment of key financial sector laws and the publication of new
microfinance licensing procedures.
Microfinance units of existing commercial banks (“Downscaling
facility”)
–

Establishment of Office of Microfinance Policy in Bank of Sudan
Technical assistance packages to existing, sufficiently capitalized commercial banks
to help develop microfinance units. Training for loan officers, organizational and
strategic support, assistance in product development, information systems design.
MFI Institution building program (“greenfield”)
–
Subordinated debt up to $800,000 for new microfinance institutions wishing to locate
in Sudan, meeting criteria of Office of Microfinance Policy. After establishment and
successful operation, debt convertible to equity.
Component 3 Led by Ministry of Investment
will focus on SME Capacity and Linkages


FDI has grown 223% since 2002. Banking, energy, retail, food
sector
But insufficiently linked to local economy and small investors
Foreign Direct Investment in Sudan
8%
USD Million
Foreign Direct Investment as % of GDP
SUDAN
7%
6%
2,500
2,000
1,500
1,000
500
-
5%
4%
VIETNAM
UGANDA
3%
S.S. AFRICA
2%
2001
2002
2003
2004
2005
WORLD
1%
ETHIOPIA
KENYA
0%
Source: BOS
2000
Source: WB Glo bal Develo pment Indicato rs 2005
2001
2002
2003
Component 3 subcomponents

Entrepreneurship awareness building
–

SME investment capacity in Ministry of Investment
–
–

Domestic investment facilitation program.
Monitoring capacity to understand impact of investment on domestic sector.
Administrative investment reforms
–

To allow rural and urban poor to become aware of microenterprise opportunities.
Building on FIAS study, to build government capacity to serve domestic investors by
reducing adminstrative barriers
Linkage Development Fund
–
–
Technical assistance facility to enable domestic firms to serve as suppliers to foreign
invested firms (linkages)
Improve cost, quality and delivery terms with techical help of foreign company’s
purchasing department/supply chain manager.
Component 4 – to be undertaken in Phase
2 - Self-Help Housing Pilot

The lack of assets of poor contributes to poverty trap

Economically active poor to be targeted for emergence from
poverty

Home ownership is one of the key ways to build assets, which
may then be used as collateral for a business.
Component 4: Self-Help Housing Pilot

A public-private partnership to build housing assets of the poor,
based on Botswana, Sri Lanka, Aceh and Mexican self-help housing.

Land plots contributed by state government

Project provides for a competitive process to provide packages of
self-help materials that are provided to qualified families.
Qualifications include 20% down payment on cost of materials.

Materials, design, and supervision.

Labor contributed by community, with small payments from family.

Project may also provide a mortgage for 80% of cost of materials.
Project management structure
Policy Guidance
PSD Steering Committee
CBOS, Ministry of Finance + all relevant Min/Agencies
Executing Agency
Bank of Sudan
Dr. Sabir Hassan, Governor
Project
Coordination
Unit
Project
Mgmt
Units
Procurement
Monitoring &
Evaluation
Min Finance
Barriers
To
Formalization
CBOS
Microfinance
Ministry of
Investment
Capacity
Building
MTDF Request
Component
Phase 1
Phase 2
Total
1
Microenterprise Policy
800,000
2,400,000
3,200,000
2
Microfinance
2,800,000
2,950,000
5,750,000
3
Capacity Building
2,000,000
3,000,000
5,000,000
4
Self-Help Housing
200,000
1,400,000
1,600,000
5
Management,
Monitoring and
Evaluation
168,000
400,000
568,000
5,968,000
10,150,000
16,118,000
Total
Government Contribution
Component
Phase 1
Phase 2
Total
1
Microenterprise Policy
800,000
2,400,000
3,200,000
2
Microfinance
650,000
2,650,000
3,300,000
3
Capacity Building
2,060,000
3,290,000
5,150,000
4
Self-Help Housing
0
2,000,000
2,000,000
5
Management, Monitoring
and Evaluation
0
0
600,000
2,000,000
300,000
5,510,000
10,640,000
Unallocated
Total
16,150,000